This is the accessible text file for GAO report number GAO-07-941R 
entitled 'Tricare: Changes to Access Policies and Payment Rates for 
Services Provided' which was released on , 2007.              

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.              

July 31, 2007:              

Congressional Committees:              

Subject: TRICARE: Changes to Access Policies and Payment Rates for 
Services Provided by Civilian Obstetricians:              

About 111,000 women covered by the Department of Defense's (DOD) 
TRICARE program gave birth during 2006.[Footnote 1] During their 
pregnancies, about half of these women received obstetric care from 
physicians and other providers practicing at military hospitals and 
clinics called military treatment facilities (MTF), while half received 
their care from civilian physicians and other civilian 
providers.[Footnote 2] In recent years, the use of civilian obstetric 
care has increased among TRICARE beneficiaries. In 2004, 51 percent of 
TRICARE beneficiaries delivered their babies at civilian hospitals; by 
2006, 54 percent delivered at civilian hospitals. However, through 
2005, some TRICARE beneficiaries reported difficulties obtaining 
obstetric care from civilian physicians.[Footnote 3]              

At the same time, some civilian physicians contended that TRICARE 
payment rates for obstetric care were too low.[Footnote 4] TRICARE 
reimburses physicians for most obstetric care using two global 
payments, one for uncomplicated vaginal delivery and the other for 
uncomplicated cesarean delivery, each of which is a single amount that 
covers a defined set of related services. In the case of obstetrics, 
these global payments cover a woman's prenatal visits, the physician's 
assistance at delivery of the baby, and postnatal care after the 
delivery of the baby.              

Under the TRICARE program, which is administered by DOD's TRICARE 
Management Activity (TMA), beneficiaries may obtain care through three 
different options. Beneficiaries enrolled in TRICARE's HMO-like option, 
called TRICARE Prime, generally obtain health care from physicians at 
an MTF. TRICARE Prime beneficiaries also may obtain care from a network 
civilian physician when the MTF does not have sufficient capacity to 
provide care. Beneficiaries who have not enrolled in Prime receive care 
under TRICARE Extra or TRICARE Standard.[Footnote 5] These options 
allow beneficiaries to receive care either from civilian physicians who 
belong to the TRICARE network or from civilian nonnetwork physicians, 
who do not belong to the TRICARE network but have agreed to accept 
TRICARE beneficiaries as patients on a case-by-case basis. TRICARE 
Extra and Standard beneficiaries may also receive care from a physician 
at an MTF on a space-as-available basis.              

TRICARE's civilian provider networks are developed by three managed 
care support contractors. Each managed care support contractor is 
responsible for the delivery of care to TRICARE beneficiaries in one of 
three geographic locations--North, South, and West. The managed care 
support contractors, among other things, establish targets for the 
number of physicians required to ensure a sufficient supply of 
providers to TRICARE patients in civilian provider networks. In 
developing these targets, each contractor estimates the percentage of 
each physician's practice that will likely be made up of TRICARE 
patients. The contractors also monitor progress in meeting targets to 
ensure network adequacy and periodically make adjustments to the 
targets to account for changes that occur in the availability of 
civilian physicians and demands for care of TRICARE 
beneficiaries.[Footnote 6]              

The National Defense Authorization Act (NDAA) for Fiscal Year 2006 
directed us to evaluate the effectiveness of DOD's TRICARE program in 
achieving adequate access for beneficiaries to high-quality obstetric 
care.[Footnote 7] As discussed with the committees of jurisdiction, 
this report (1) describes changes TRICARE has made to obstetric 
coverage policy and payment rates since late 2003 to address concerns 
about access to civilian outpatient obstetric care and about the 
adequacy of payments to civilian physicians for obstetric care and (2) 
examines the extent to which TRICARE's managed care support contractors 
achieved targeted numbers of obstetric care providers in their civilian 
provider networks in 2005 and 2006, and potential implications for 
access to care. In addition, we provide information on the change in 
TRICARE payment rates for obstetric care compared to inflation; this 
information is shown in enclosure I.              

To provide information on TRICARE changes to policies regarding access 
to obstetric care and payment rates, we reviewed relevant coverage and 
payment policies implemented in late 2003 through 2006. We interviewed 
officials from TMA, the office with responsibility for ensuring that 
DOD health policy is implemented for the TRICARE program. We also 
interviewed representatives of the American College of Obstetricians 
and Gynecologists and the National Military Family 
Association.[Footnote 8]              

To provide information on the extent to which TRICARE's managed care 
contractors met targets for the number of obstetricians[Footnote 9] in 
their civilian provider networks, and implications for access to care, 
we analyzed data provided by the managed care support contractors for 
TMA-defined service areas called prime service areas (PSA).[Footnote 
10] The managed care support contractors provided us with periodic 
reports on the targeted and actual number of network obstetricians 
participating in the civilian provider networks during 2005 and 2006. 
For each reporting period, in each PSA, we determined whether the 
actual number of network obstetricians fell short of the targeted 
number of network obstetricians by one or more. Across the entire 
reporting period of calendar years 2005 and 2006, we identified the 
number of PSAs that had fewer obstetricians than were targeted for four 
or more reporting periods. We considered these PSAs to have "frequently 
fallen short" of the targets set by the managed care contractors. We 
also interviewed representatives of the three managed care support 
contractors, the American College of Obstetricians and Gynecologists, 
and the National Military Family Association about TRICARE 
beneficiaries' access to obstetric care during 2006.              

Our analysis of the number of obstetricians participating in TRICARE's 
civilian provider networks was limited by the data available. We asked 
the managed care support contractors to provide monthly data for 
January, April, July, and October 2005 and 2006. The North and West 
regions' managed care support contractors provided periodic data 
reports for calendar year 2005 and most of calendar year 2006, while 
the South region managed care support contractor provided monthly data 
as we requested. The North region was unable to report until March 
2005, which resulted in slightly different reporting periods for the 
North and West regions. The data provided by the managed care support 
contractors were sufficient to illustrate the extent to which each of 
the three managed care contractors met its own targets for the number 
of network obstetricians during the period for which data were 
provided, which generally covered early calendar year 2005 through late 
calendar year 2006.              

Through our review of relevant documentation and discussions with TMA 
officials and representatives of managed care support contractors, we 
determined that the data presented in this report were sufficiently 
reliable for our purposes. We did not assess the soundness of TRICARE's 
policy changes, nor did we evaluate the criteria used by the managed 
care support contractors for determining the targeted number of network 
obstetricians. Although we did not verify the managed care support 
contractors' data on the number of network obstetricians, we reviewed 
the data for implausible values and internal consistency. Because TMA 
made several changes to its payment rates for obstetric care that took 
effect during 2006, at the time of our review data were not yet 
available to draw conclusions about the effect of these changes on 
beneficiaries' access to civilian obstetric care.[Footnote 
11]              

We conducted our work from December 2006 through June 2007 in 
accordance with generally accepted government auditing 
standards.              

Results in Brief:              

Since late 2003, TMA has made several changes aimed at addressing 
concerns about TRICARE beneficiaries' access to civilian obstetric 
care. TMA's nationwide changes began in late 2003; the most recent 
changes took effect in 2006. In late 2003, TMA loosened controls over 
access to civilian obstetric care nationwide by permitting TRICARE 
Extra and Standard beneficiaries to obtain obstetric care from civilian 
physicians without first receiving approval from the local MTF. In 
2006, TMA made two nationwide changes to its physician payment rates 
for obstetric care. First, TMA began paying separately for maternity 
ultrasounds--outside of TRICARE's two global payments for obstetric 
care--performed during an uncomplicated pregnancy, which is likely to 
result in increased total payments to physicians.[Footnote 12] Second, 
TMA increased payment rates for obstetric care in geographic areas 
where TRICARE payment rates were lower than the Medicaid payment rates 
for obstetrics, to match the Medicaid payment rates.[Footnote 13] In 
addition, in response to localized concerns about severe physician 
shortages, TMA increased payment rates for specialized obstetric care 
in Alaska and raised payment rates for obstetric care in a South Dakota 
PSA to improve access and network capacity in these 
locations.              

In 2005 and 2006, managed care support contractors met most of the 
targets--77 percent--they set for numbers of obstetricians in TRICARE's 
regionally based networks. Of the 175 PSAs in the civilian provider 
networks, 24 PSAs (14 percent) fell short of obstetrician supply 
targets for four or more reporting periods during 2005 and 2006, while 
another 16 PSAs (9 percent) fell short of these targets for one to 
three quarters. The contractors' achievement in meeting the majority of 
their targets in 2005 and 2006 serves as an indicator that access was 
not likely a problem for most TRICARE beneficiaries seeking obstetric 
care. However, we could not be conclusive about access from these data 
alone because of other factors that can influence access. For example, 
in PSAs where targets were consistently met, access could have been a 
problem if the contractors overestimated the percentage of TRICARE 
patients that network civilian obstetricians were willing to treat. 
Conversely, in PSAs that frequently fell short of established targets, 
network civilian obstetricians may have been willing to absorb more 
TRICARE patients than had been estimated by the contractors. 
Representatives of the American College of Obstetricians and 
Gynecologists and the National Military Family Association told us that 
they had not heard significant concerns from their members in 2006 
about the adequacy of TRICARE's payment rates for obstetric care or 
access to civilian obstetricians. In commenting on a draft of this 
report, DOD agreed with our findings.              

Background:              

To supplement health care provided in MTFs, TMA requires managed care 
support contractors to develop civilian provider networks. To 
accomplish this, managed care support contractors develop comprehensive 
network plans that include physician targets for each specialty, 
including the number of obstetric care providers required for each PSA. 
A key factor for civilian obstetricians in deciding whether to 
participate in TRICARE has been the payment rate for obstetric care, 
which has undergone significant changes over the past decade as part of 
an overall effort to reduce military health care costs. In geographic 
locations where the TRICARE program is experiencing shortages of 
providers or access to health care is severely impaired, TMA has the 
authority to approve payment rate increases to encourage civilian 
physicians and other providers to participate in TRICARE.              

TRICARE Provisions for Extra and Standard Beneficiaries to Use Civilian 
Care:              

TRICARE Standard is designed to provide TRICARE beneficiaries maximum 
flexibility in selecting civilian providers. Under Standard, TRICARE 
beneficiaries may obtain care from TRICARE-authorized nonnetwork 
civilian providers of their choice.[Footnote 14] TRICARE beneficiaries 
using this option do not need a referral for most specialty care. 
Network civilian physicians enter a contractual agreement with the 
regional managed care support contractors to provide health care to 
TRICARE beneficiaries. However, network civilian physicians do not have 
to accept all TRICARE beneficiaries seeking care if the physician's 
practice does not have sufficient capacity. Nonnetwork civilian 
physicians do not have a contractual agreement with a managed care 
support contractor, and may accept TRICARE beneficiaries as patients on 
a case-by-case basis. They also have the option of charging up to 15 
percent more than the TRICARE payment rate. The beneficiary must pay 
the additional 15 percent, along with their required 
copayments.              

TMA Oversight of TRICARE Program:              

TMA, in DOD's Office of the Assistant Secretary of Defense for Health 
Affairs, establishes TRICARE policy and payment rates for services. To 
help administer the program, TMA uses managed care support contractors 
to develop networks of civilian providers and perform other customer 
service functions, such as claims processing. Currently, there is one 
managed care support contractor for each of TRICARE's three 
regions.[Footnote 15] For each PSA within the regions, managed care 
support contractors are required to maintain civilian provider networks 
that are large enough to provide access to care for all TRICARE 
beneficiaries living in the area. To do so, each contractor, using its 
own methodology, determines the number of civilian physicians required 
for each PSA in its region, based on the number of TRICARE 
beneficiaries in the PSA and other factors, such as the estimated 
percentage of each physician's practice likely to be made up of TRICARE 
patients.[Footnote 16] Separate targets are set for each specialty, 
including obstetrics, and these targets along with other information on 
the network size are updated by the contractors in monthly or quarterly 
reports.              

For each region, TMA has established a TRICARE regional office and has 
designated the office directors as health plan managers for their 
regions with responsibilities for monitoring provider network adequacy, 
overseeing the managed care support contractors, and monitoring 
customer satisfaction. In 2006, about 9,600 obstetricians participated 
in TRICARE's civilian provider network, representing about 26 percent 
of all civilian obstetricians in the United States.[Footnote 
17]              

TRICARE Payment Structure for Civilian Obstetric Care:              

TMA pays civilian physicians for most obstetric care using global 
obstetric payments. Under a global payment, physicians are not 
reimbursed separately for every office visit or individual service 
provided. Rather, the physician receives one payment for a defined set 
of related services. TRICARE's most frequently used global obstetric 
payments include payment for prenatal care, the physician's attendance 
at delivery, and postnatal care.[Footnote 18] Although TMA also pays 
physicians for obstetric care through 59 other billing codes, 
approximately 68 percent of TRICARE's obstetric payments are made under 
the 2 billing codes that we refer to as global payments--the payments 
for the set of obstetric services related to uncomplicated vaginal 
deliveries and the set of services related to uncomplicated cesarean 
deliveries. The other 59 billing codes used to reimburse for obstetric 
care are for such obstetric-related services as amniocentesis, a 
diagnostic procedure sometimes performed during pregnancy, or delivery- 
only services for cases in which the physician does not provide 
prenatal or postnatal care.              

TRICARE's payment rates for obstetric care have been in transition for 
over a decade. In the early 1990s, under DOD's former health care 
program, DOD's payment rates to civilian physicians were based on 
historical charges--an annual calculation of physicians' charges for 
services claimed the previous year.[Footnote 19] Using this approach, 
DOD's payment rates were, on average, 50 percent higher than those paid 
for identical treatment under the Medicare program.[Footnote 20] 
Beginning with fiscal year 1991, in response to concerns about rising 
costs of military health care, Congress required that DOD's physician 
payments gradually be brought in line with payment rates under the 
physician fee schedule for the Medicare program. Each year, the payment 
rate for a particular service was to be reduced by no more than 15 
percent of the amount allowed during the previous year for that 
service.[Footnote 21]              

As DOD implemented these payment revisions, however, civilian 
obstetricians expressed concerns that the revised payment rates were 
too low. In response, in July 1998, TMA returned payment rates for 
obstetric billing codes to 1997 levels after having reduced those rates 
earlier in the year. TMA then decided to freeze obstetric payment rates 
at 1997 levels until Medicare payment rates for obstetric care caught 
up to TRICARE's 1997 payment rates.              

Thus, TMA allowed inflation to gradually reduce the value of TRICARE's 
obstetric payments.[Footnote 22] As shown in figure 1, from July 1998 
through 2006, TRICARE's global payments for the set of services related 
to uncomplicated vaginal deliveries and uncomplicated cesarean 
deliveries have remained relatively constant at about $1,600 and 
$1,800, respectively.              

Figure 1: Payment Rates for TRICARE's Most Frequently Used Billing 
Codes for Obstetric Services, Known as Global Payments, 1997 through 
2006:              

[See PDF for image]              

Source: GAO analysis of TRICARE payment data.              

Note: In 2006, the two global obstetric payments represented 68 percent 
of TRICARE's total physician payments for obstetric care. This figure 
shows that TRICARE's global payments for obstetric care services have 
remained relatively constant since July 1998, when TMA restored payment 
rates to 1997 levels in response to physicians' concerns that payment 
rates were too low.              

[End of figure]

TMA Has Authority to Adjust Payment Rates under Certain 
Conditions:              

TMA has the authority to adjust TRICARE payment rates under certain 
conditions to increase beneficiaries' access to care. Under TMA's 
locality-based waiver authorities, TMA may approve increases in 
TRICARE's payment rates for both network and nonnetwork providers in 
locations where access to care is impaired. For example, TMA may 
approve payment rate increases for network providers when it has 
determined that it is necessary and cost effective to approve higher 
rates to ensure an adequate number and mix of qualified health care 
physicians in a specific locality. In such instances, payment rates can 
be raised to a maximum of 115 percent of rates set in the TRICARE 
physician fee schedule.[Footnote 23] TRICARE payment rates for specific 
services can also be adjusted for both network and nonnetwork providers 
in localities where access to care has been severely impaired.[Footnote 
24] In such instances, one method that may be used to establish the 
higher payment rates is to adopt the payment rates of other government 
health care programs, such as Medicaid. If this method is used, TMA 
would adopt the applicable state Medicaid rate if TRICARE's payment 
rate is lower in a specific location.[Footnote 25]              

Recent Changes Loosened a Restriction on Access to Civilian Obstetric 
Care and Increased Some Obstetric Payment Rates:              

Since late 2003, TMA has made several changes aimed at addressing 
concerns about TRICARE beneficiaries' access to civilian obstetric 
care. One change loosened a restriction on access to civilian providers 
of obstetric care, and other changes raised payment rates for obstetric 
care in some geographic areas and for specific obstetric 
services.              

In December 2003, in response to provisions in the NDAAs for fiscal 
years 2001 and 2002, TRICARE loosened restrictions on Standard and 
Extra beneficiaries' access to civilian obstetricians and other 
civilian providers of obstetric care.[Footnote 26] Prior to that time, 
Standard and Extra beneficiaries who resided within a 40-mile radius of 
an MTF had been expected to receive their obstetric care from military 
physicians at the local MTF. Civilian obstetric care was permitted for 
those beneficiaries only when the beneficiary lived more than 40 miles 
from the MTF or when the local MTF provided a written statement of 
nonavailability, stating that the MTF did not have sufficient capacity 
to provide obstetric care. This limitation caused concern among some 
Standard and Extra beneficiaries who received other medical care from 
civilian physicians. On December 28, 2003, TMA revised its regulations 
to allow Standard and Extra beneficiaries who lived within a 40-mile 
radius of an MTF to access obstetric care from civilian physicians 
without first obtaining a nonavailability statement.[Footnote 
27]              

Payment changes include the following:              

* TRICARE changed the way it paid for obstetric ultrasounds. Effective 
April 1, 2006, to help address concerns among civilian obstetricians 
about payment rates for obstetric care, TMA began paying for 
ultrasounds related to uncomplicated pregnancies outside the global 
obstetric payment. This additional payment is likely to result in 
overall higher payments for physicians who perform one or more 
ultrasounds during the course of pregnancy.[Footnote 28] Prior to this 
change, TRICARE included ultrasounds performed for uncomplicated 
pregnancies in the global obstetric payment.[Footnote 29] However, 
after an analysis of historical TRICARE claims data, TMA officials 
determined that the global obstetric payment was not sufficient to 
cover the physicians' payments for ultrasounds, and that its policy to 
include ultrasounds in the global obstetric payment may have 
inadvertently discouraged physicians from doing as many ultrasounds as 
might be needed.[Footnote 30]              

* TRICARE matched state Medicaid payment rates for physician-provided 
obstetric care. Effective May 1, 2006, TMA increased payment rates for 
obstetric care to ensure that TRICARE's payment rates were at least 
equal to Medicaid payment rates in each state. For a locality to 
qualify for increased obstetric payment rates under this policy change, 
TRICARE had to have been paying an amount below the state's Medicaid 
payment rate.[Footnote 31] Specifically, TMA identified states where at 
least one locality was below the state's Medicaid payment rate for any 
of the six most frequently billed codes for obstetric care. In those 
localities, TMA increased TRICARE payment rates to match the state's 
Medicaid payment rates for a broader range of obstetric care that 
includes services provided under 14 billing codes.[Footnote 32] For 
2006, this policy affected TRICARE's payment rates in 12 states, 
primarily in the West region, as shown in figure 2. Under this change, 
TRICARE's payments for the 14 obstetric billing codes increased an 
average of 19 percent in the affected states.[Footnote 33],[Footnote 
34]              

Figure 2: States Receiving TRICARE Payment Rate Increases for Obstetric 
Care Services to Match State Medicaid Rates, 2006:              

[See PDF for image]              

Source: GAO analysis of DOD data.

[End of figure]              

* Under the locality-based waiver authority, TRICARE increased payment 
rates for perinatology services in Alaska. On November 21, 2005, TMA 
approved a locality waiver request to raise payment rates for 
perinatologists in Alaska in response to obstetric specialist supply 
problems.[Footnote 35] TMA raised TRICARE payment rates to 140 percent 
of the obstetric payment rates set in the TRICARE physican fee schedule 
in response to physician concerns that the TRICARE payment rate was too 
low. TMA officials noted that there were only three perinatologists in 
the state at that time; these providers had agreed to continue 
participating when the payment rate was raised to 140 percent. On 
February 1, 2007, under a 3-year demonstration program, TMA began 
paying all physician services in Alaska at 135 percent of the rates set 
in the TRICARE physician fee schedule, including nonspecialty obstetric 
care services.[Footnote 36] As a result, the gap in payment for 
services provided by perinatologists and other physicians providing 
obstetric care in Alaska narrowed substantially.[Footnote 
37]              

* Under the locality-based waiver authority for network providers, 
TRICARE increased payment rates for physicians providing obstetric care 
in the Ellsworth Air Force Base PSA, South Dakota. On May 16, 2006, TMA 
approved a locality waiver request to increase payment rates for 
obstetric services provided by a group practice of 12 obstetricians in 
the Ellsworth Air Force Base PSA, South Dakota.[Footnote 38] Stating 
that TRICARE's payment rates for obstetric care were too low, the group 
practice had decided to leave the TRICARE network. In its review of the 
waiver request, TMA found that obstetric care was not offered at the 
local MTF. Furthermore, there were no other civilian obstetricians 
practicing in the area to accept the TRICARE beneficiaries that were 
receiving care from the group practice. TMA concluded that its payment 
rates should be increased due to severely limited access to network- 
based obstetric care in the PSA. TMA set its obstetric payment rates at 
115 percent of the established payment rate and the group of physicians 
agreed to remain in the civilian provider network. In the event that 
other obstetricians located in the area were willing to join the 
TRICARE network, TMA officials indicated that they would consider 
whether the increased payment rate was still necessary to ensure 
beneficiary access to care from network physicians.              

In 2005 and 2006, Managed Care Support Contractors Met Their Targets 
for Network Civilian Obstetricians in Most TRICARE 
Localities:              

In 2005 and 2006, managed care support contractors met most of their 
targets for the number of obstetricians in TRICARE's civilian provider 
networks. Of the 175 PSAs subject to TRICARE's standards for network 
adequacy, 135 PSAs (77 percent) met targets for network civilian 
obstetricians during all reported periods during 2005 and 2006. 
Relatively few localities frequently fell short of the contractor-set 
targets, with "frequently" defined by us as missing targets during four 
or more reported periods during 2005 and 2006. Across the three 
contractors' regions, 24 PSAs (14 percent) frequently fell short of 
targets for obstetricians. Nineteen of these 24 PSAs were still short 
of their targets as of late calendar year 2006, the last reporting 
period for which we obtained data. Another 16 PSAs (9 percent) fell 
short of targets during one to three reporting periods in 2005 and 
2006.              

The 24 PSAs where contractors frequently fell short of targets for 
civilian obstetricians include a mixture of urban and rural counties. 
Sixteen of the 24 PSAs are made up of predominately urban counties 
while 8 PSAs are predominately rural counties.[Footnote 39] Some of the 
locations may have been affected by overall shortages of practicing 
civilian obstetricians. In 2004, nationwide, there were 12.5 practicing 
obstetricians and gynecologists per 100,000 population.[Footnote 40] In 
that year, 15 of the 24 PSAs were below this national average, whereas 
8 of the 24 PSAs exceeded the national average.[Footnote 
41]              

The North region had the greatest number of localities--17 PSAs--that 
frequently fell short of targets for civilian obstetricians. (See fig. 
3.) The South region had 5 PSAs and the West, 2 PSAs, which frequently 
did not meet targets for civilian obstetricians during the review 
period.              

Our finding that more than three-fourths of PSAs met their physician 
supply targets for all reported periods is an indicator that access was 
not likely a problem for most TRICARE beneficiaries seeking obstetric 
care. However, we could not be conclusive about access from the 
contractors' data alone because of other factors that can influence 
access. For example, in PSAs where targets were consistently met, 
access could have been a problem if managed care support contractors 
overestimated the percentage of TRICARE patients that network civilian 
obstetricians were willing to treat. Alternatively, in PSAs that 
frequently fell short of established targets, network civilian 
obstetricians may have been willing to take on more TRICARE patients 
than had been estimated by the managed care support 
contractors.              

Figure 3: Number of PSAs That Met or Fell Short of Targets for Civilian 
Obstetricians by TRICARE Region, 2005 and 2006:              

[See PDF for image]              

Source: GAO analysis of TRICARE managed contractor data.              

Note: Data for the North region are quarterly from March 2005 through 
November 2006. Data from the West region are quarterly from January 
2005 through September 2006, and data from the South region are monthly 
for January, April, July, and October 2005 and 2006. Managed care 
contractors use different models to set targets for the number of 
physicians in the civilian provider network.            

[End of figure]  

In separate discussions with national associations representing 
obstetricians and military family members, association officials 
indicated that, in 2006, their members did not relate substantial 
concerns about the adequacy of TRICARE's payment rates or access to 
civilian obstetricians. The representatives of managed care support 
contractors also told us they had received a minimal number of concerns 
from beneficiaries and network civilian obstetricians about obstetric 
care matters.              

Agency Comments:              

We provided a draft of this report to DOD for comment. DOD's comments 
are reprinted in enclosure II. In its comments, DOD stated that it 
agreed with our findings and provided technical comments. We 
incorporated DOD's technical comments as appropriate.              

- - - --:              

We are sending copies of this report to the Secretary of Defense and 
other interested parties. In addition, this report will be available at 
no charge on GAO's web site at [hyperlink, http://www.gao.gov]. We will 
also make copies available to others upon request. If you or your staff 
have any questions about this report, please contact me at (202) 512-
7114 or ekstrandl@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Phyllis Thorburn, Assistant Director; Alexander 
Dworkowitz; Hannah Fein; Jenny Grover; and Darryl Joyce made key 
contributions to this report.              

Signed by: 

Laurie E. Ekstrand:
Director, Health Care:              

Enclosures - 2:              

List of Committees:              

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:              

The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:              

The Honorable Ike Skelton:
Chairman:
The Honorable Duncan Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:              

The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:              

The Change in TRICARE Payments for Obstetric Care as Compared to 
Inflation:              

Table 1 shows the change in TRICARE's payment rates for six common 
obstetric billing codes that include payment for childbirth, relative 
to the change in inflation, from 1997 to 2006.              

Table 1: Percentage Change in TRICARE Payment Rates for Six Obstetric 
Care Billing Codes Compared to the 2.7 Percent Average Annual Change in 
Medical Inflation, 1997 through 2006:              

Services billed under six obstetric codes: Set of obstetric services 
related to an uncomplicated vaginal delivery; 
Average annual change (percentage): 0.3;              

Services billed under six obstetric codes: Vaginal delivery only; 
Average annual change (percentage): 0.0;              

Services billed under six obstetric codes: Vaginal delivery and 
postpartum care; 
Average annual change (percentage): 0.0;              

Services billed under six obstetric codes: Set of obstetric services 
related to an uncomplicated cesarean section; 
Average annual change (percentage): 0.3;

Services billed under six obstetric codes: Cesarean delivery only; 
Average annual change (percentage): 0.0;             

Services billed under six obstetric codes: Cesarean delivery and 
postpartum care; 
Average annual change (percentage): 0.0;
           
Source: GAO analysis of TRICARE payment data.              

Note: Together, the six billing codes accounted for about 90 percent of 
TRICARE's total payments for obstetric care in 2006. The rate of 
inflation is measured by the Medicare Economic Index (MEI). The MEI is 
a measure of inflation relative to physicians' practice costs and 
general wage levels. The MEI includes a set of inputs used in 
furnishing services such as a physician's own time, nonphysician 
employees' compensation, rent, and medical equipment. The MEI measures 
year-to-year changes in prices for these various inputs based on 
appropriate price proxies. TRICARE payment rates for four of the six 
obstetric care billing codes were above Medicare payment rates in 2006: 
vaginal delivery only; vaginal delivery, including postpartum care; 
cesarean delivery only; and cesarean delivery, including postpartum 
care.              

[End of table]

Comments from the Department of Defense:              

he Assistant Secretary Of Defense:
1200 Defense Pentagon:
Washington, D.C. 20301-1200:

Department of Defense Health Affairs:
July 18, 2007:

Ms. Laurie Ekstrand:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:             

Dear Ms. Ekstrand:

This is the Department of Defense (DoD) response to the Government 
Accountability Office's (GAO) draft report, GAO-07-94IR, "TRICARE: 
Changes to Access Policies and Payment Rates for Services Provided by 
Civilian Obstetricians," dated July 2, 2007 (GAO Code 290602). 

Thank you for the opportunity to review and provide comments on the 
Draft Report. We have reviewed the report for technical accuracy and 
agree with the findings. I have attached several technical comments in 
reference to effective dates for TRICARE changes for payment rates and 
services. In addition, I concur with the Draft Report's conclusions. 
DoD is pleased the GAO found that the TRICARE managed care support 
contractors met most of the targets for the number of physicians in the 
provider network for 2005 and 2006 and that is an indicator that access 
was not likely a problem for most TRICARE beneficiaries seeking 
obstetric care. 

My points of contact are Ms. Reta Michak (Functional) at (303) 676-3440 
and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-3492. 

Sincerely,

Signed by: 

S. Ward Casscells, MD:

Enclosure: 
As stated:

Footnotes:              

[1] TRICARE offered health care to approximately 9.1 million active 
duty personnel, retirees, and their dependents in 2006.               

[2] Obstetrics is the branch of medicine that addresses the care of 
women during pregnancy, childbirth, and the recuperative period 
following delivery. In addition to obstetricians, other physicians may 
provide obstetric care. In this report, we generally refer to 
physicians as the providers of obstetric care, but obstetric care may 
also be delivered by other types of providers such as nurse midwives 
and nurse practitioners.               

[3] In general, TRICARE beneficiaries have shifted to civilian 
providers for outpatient care in recent years. From fiscal year 2004 to 
fiscal year 2006, use of civilian providers increased from 37 percent 
to 43 percent of total outpatient care provided. The trend toward 
increasing use of civilian providers may partially reflect changes in 
TRICARE beneficiaries' place of residence. Because of military base 
closures and shifts in the mix of TRICARE beneficiaries (such as 
additional reservists and their family members) the percentage of 
TRICARE beneficiaries who lived near an MTF declined between 2000 and 
2006 from 55 percent to 48 percent.               

[4] In fiscal year 2006, TRICARE paid $82 million to civilian 
physicians for outpatient obstetric care, which represented about 4 
percent of the program's total outpatient payments of $1.9 billion to 
civilian physicians that year. The total TRICARE budget for fiscal year 
2006 was about $39 billion.               

[5] When TRICARE beneficiaries who have not enrolled in Prime choose to 
receive care from a network physician, they do so under the rules of 
TRICARE Extra, which resembles a preferred provider organization. In 
contrast, TRICARE Standard resembles a traditional fee-for-service 
program. Nonenrolled TRICARE beneficiaries cannot be categorized as 
belonging to either Extra or Standard because each time they seek care, 
they can choose to see a network or nonnetwork civilian physician, and 
this choice determines whether they receive coverage under Extra or 
Standard.               

[6] The managed care support contractors have a financial incentive to 
ensure that they develop and maintain an adequate supply of physicians 
in the civilian provider network. TMA requires, on a monthly basis, 
that not less than 96 percent of all referrals of TRICARE beneficiaries 
who reside within 40 miles of an MTF be made to a physician at an MTF 
or a physician in the civilian provider network. If this standard is 
not met, TMA imposes a monetary penalty that reduces its payment to the 
contractor.              

[7] See Pub. L. No. 109-163,  734, 119 Stat. 3136, 3353-
55.              

[8] The American College of Obstetrics and Gynecologists is a national 
professional society that represents 90 percent of U.S. board-certified 
obstetrician-gynecologists. The National Military Family Association 
represents members of the armed forces and their families.              

[9] TRICARE's managed care support contractors set targets for 
specialists in obstetrics and gynecology, which may include providers 
other than obstetricians.               

[10] PSAs typically include a 40-mile radius around MTFs and thus can 
include multiple counties. PSAs are also established for other areas 
where TMA has determined that networks would be cost 
effective.              

[11] TRICARE claims data offer information about trends in service use 
and the number of physicians providing care to TRICARE beneficiaries, 
but complete data have a lag time of about 1 year behind program 
changes as physicians and other providers may take up to 1 year to 
submit claims for payment. Only after claims are submitted for payment 
are the records of service use and physician participation included in 
the claims database.               

[12] Ultrasound is a type of imaging used by health professionals in 
many types of examinations and procedures. A standard maternity 
ultrasound creates a picture that helps a provider determine a baby's 
gestational age and evaluate a baby's growth and 
development.              

[13] Medicaid is the joint federal-state program that provides health 
care coverage for certain low-income individuals. In fiscal year 2005, 
the last year for which data were available, about 60 million low- 
income children, families, and aged or disabled individuals were 
covered by Medicaid.               

[14] For more information about access to civilian health care 
providers for TRICARE beneficiaries who have not enrolled in Prime see 
GAO, Defense Health Care: Access to Care for Beneficiaries Who Have Not 
Enrolled in TRICARE's Managed Care Option, GAO-07-48 (Washington, D.C.: 
Dec. 22, 2006).              

[15] Each TRICARE region has about the same number of TRICARE 
beneficiaries.              

[16] In developing civilian provider networks, managed care support 
contractors also consider historical medical needs, availability of 
existing services in MTFs, and the availability of civilian providers 
to deliver care within the PSAs.               

[17] According to the 2005 Area Resource File published by the National 
Center for Health Workforce Analysis, Bureau of Health Professions, 
Health Resources and Services Administration, Department of Health and 
Human Services, in 2004 there were about 37,200 civilian obstetricians 
in the United States. The Area Resource File provides data on county- 
level demographics and health systems.              

[18] Hospitals bill TRICARE separately for the hospital 
stay.              

[19] DOD replaced its Civilian Health and Medical Program of the 
Uniformed Services (CHAMPUS), which had been administered as a fee-for- 
service type health care program, with TRICARE, a triple-option benefit 
type program, in 1994. CHAMPUS payments were based on an annual 
calculation of the 80th percentile of physicians' charges 
statewide.               

[20] DOD is now required by law to follow Medicare's reimbursement 
rules to the extent practicable. See 10 U.S.C.  1079(j)(2). Since 
1992, Medicare--the federal program that pays for health care services 
and items on behalf of more than 42 million elderly and disabled 
beneficiaries--has paid physicians using a fee schedule with payment 
rates for more than 7,000 services. The physician community is involved 
in setting the relative differences in payment rates for these 
services, including payment rates for services not commonly used by the 
Medicare population, such as obstetric care.               

[21] See Department of Defense Appropriations Act for Fiscal Year 1991, 
Pub. L. No. 101-511,  8012, 104 Stat. 1856, 1877 (1990). This 
provision was codified at 10 U.S.C.  1079(h).              

[22] By 2006, 30 of the 61 obstetric billing codes were still paid at 
TRICARE's 1997 payment rate levels.               

[23] See 10 U.S.C.  1097b(a); 32 C.F.R. 
199.14(j)(1)(iv)(E).              

[24] See 10 U.S.C.  1079(h)(5); 32 C.F.R.  
199.14(j)(1)(iv)(D).               

[25] Medicaid payment rates are consistent across all geographic areas 
within a state, whereas TRICARE rates are locality based. There are 89 
TRICARE payment rate localities for the United States and Puerto 
Rico.               

[26] See Pub. L. No. 106-398,  728, 114 Stat. 1654, 1654A-189 (2000); 
Pub. L. No. 107-107,  735, 115 Stat. 1012, 1171-72 
(2001).               

[27] TRICARE's Prime enrollees are not affected by this change. They 
are expected to receive obstetric care from physicians at the local 
MTF, unless the local MTF lacks sufficient capacity, in which case 
enrollees are referred to civilian physicians for care.              

[28] TMA estimated that program costs would increase by about $1.5 
million annually as a result of this change.               

[29] TRICARE's policy has always been to pay separately--outside the 
global obstetric payment--for ultrasounds performed during complicated 
pregnancies.              

[30] We did not review TMA's analysis of the claims data.              

[31] State Medicaid payments for obstetric care varied widely in 2006. 
In its comparison of TRICARE payment rates and state Medicaid payment 
rates, TMA found that state Medicaid payments for the set of obstetric 
services related to an uncomplicated vaginal delivery (or the closest 
equivalent set of services under the state's payment system) ranged 
from $616 in Ohio to $2,859 in Connecticut.               

[32] In 2006, the 6 billing codes used to identify states for the 
Medicaid-related payment increase together accounted for about 90 
percent of TRICARE's total payments for obstetric care, while the 14 
billing codes together accounted for over 97 percent of payments for 
obstetric care.              

[33] In implementing this change across the 12 states, TMA made a total 
of 118 distinct payment increases by adjusting its payment rates for 
any of the 14 billing codes that were paid below the Medicaid payment 
rate in the state. The average payment increase in 2006 was $142, with 
a median payment increase of about $69. TMA estimated that program 
costs would increase by about $2 million annually as a result of this 
change.               

[34] Annually, TMA compares TRICARE payment rates and Medicaid state 
payment rates for obstetrics. According to TMA, 11 of the 12 states 
that received the increase to the Medicaid payment rate in 2006 
(Arizona, Connecticut, Massachusetts, Montana, Nebraska, Nevada, 
Oregon, South Carolina, Washington, West Virginia, and Wyoming) also 
received matching rates in 2007. Alaska did not receive a Medicaid 
matching rate increase for 2007 as its payment rates were raised above 
the Medicaid rate in February 2007 by a TRICARE demonstration 
project.               

[35] Perinatologists are obstetric specialists who provide care for 
women in high-risk pregnancies. They generally receive the same global 
obstetric payment level as obstetricians and other physicians who focus 
on patients who are not high risk.              

[36] See 71 Fed. Reg. 67112-13 (Nov. 20, 2006).              

[37] TMA officials indicated that the payment rate increase for Alaska 
was necessary due to an overall scarcity of providers, their reluctance 
to accept TRICARE payment rates, transportation issues, and other 
factors. Through the demonstration project, TMA expects to obtain 
information about how increased payment rates affect provider 
participation in TRICARE, beneficiary access to care, and the cost of 
health care services.              

[38] The waiver also included payment for gynecology, which focuses on 
reproductive health care services for women.               

[39] The 24 PSAs with recurring shortfalls of civilian network 
obstetricians include a total of 1,580 counties, of which 1,022 
counties (65 percent) are urban and 558 (35 percent) are 
rural.               

[40] These figures are based on 2005 data from the Bureau of Health 
Professions, Health Resources and Services Administration, Department 
of Health and Human Services.               

[41] Two of the PSAs are located within the same county and thus the 24 
PSAs collapse into 23 PSAs when reporting on county-level statistics. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]
E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: