Defense Health Care:

TRICARE Resource Sharing Program Failing to Achieve Expected Savings

HEHS-97-130: Published: Aug 22, 1997. Publicly Released: Aug 22, 1997.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) use of support contracts to help deliver health care and to control costs, focusing on: (1) whether resource sharing savings are meeting DOD's projections and thus helping control TRICARE costs; (2) what problems DOD might be encountering in pursuing resource sharing; and (3) actions and alternatives pursued by DOD to overcome those problems. GAO also considered the implications of resource sharing within the broader context of TRICARE's overall cost-effectiveness.

GAO noted that: (1) DOD and the contractors have made agreements likely to save about 5 percent of DOD's overall resource sharing savings goals; (2) new agreements are being considered, but neither DOD nor the contractors are confident that pending agreements will be reached or that further cost savings can be attained; (3) because resulting TRICARE contract costs may be greater than anticipated, both parties may experience related financial losses; (4) problems impeding progress on resource sharing agreements and the related savings have included lack of clear program policies and priorities, uncertainty about cost effects on military hospitals, lack of financial rewards for the hospitals entering into such agreements, and changes in military hospital capacities after contractors developed bids; (5) in response, DOD has revised policies, improved training and analytical tools, and taken other steps to promote resource training under the contracts, but to date, these efforts have not been sufficient to bring needed results; (6) for the last two contracts, DOD is applying a revised financing approach that includes resource sharing but at a reduced level; (7) the new approach allocates more funds to the military hospitals and less to the contractors, enabling the hospitals to directly acquire and use outside resources rather than use resource sharing with the contractor; (8) how the military hospitals, other sources, and contractors interact under the new approach is still being defined and has not been tested; resource sharing problems will not be automatically eliminated and may be exacerbated when used in combination with revised financing; (9) for the future, DOD plans even broader changes intended to simplify military hospital budgeting and support contract operations; (10) while the military hospitals and contractors could still use resource sharing, it no longer would be the basis for projecting major savings and lowering bids at the contract's outset; (11) DOD officials acknowledged their resource sharing savings problems but told GAO that lower than expected contract award prices have led to over $2 billion in unexpected, offsetting savings; (12) while TRICARE's overall cost-effectiveness was beyond GAO's review scope, there are reasons to question the currency and analytical completeness of DOD's preliminary savings claims; and (13) GAO supports DOD's current plans to undertake a detailed analysis, based on more up-to-date cost data and estimates, of TRICARE's overall cost-effectiveness.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Acting in accord with GAO's recommendations, DOD and the contractors accelerated their resource sharing efforts, resulting in new resource sharing agreements projected to save an additional $38 million annually. Those resource sharing savings ultimately represent government savings--or loss avoidance protection--in that the government assumes total responsibility for contractors' financial losses beyond a certain point--which the otherwise general failure of resource sharing may bring about.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense (Health Affairs) to determine whether any further resource sharing savings remain under the current contracts and, as appropriate, consummate promising agreements while seeking other mutually acceptable alternatives to resource sharing.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: This recommendation is no longer applicable as DOD has eliminated resource sharing requirements from contract proposals which alleviates the government's responsibility for losses due to potential resource sharing failures.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense (Health Affairs) to determine, to the extent the new contracts with revised financing use resource sharing, whether any such agreements are available and, as appropriate, enter promising agreements while seeking effective alternatives to resource sharing.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: The recommendation is no longer applicable as DOD eliminated resource sharing requirements from contract proposals.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense (Health Affairs) to incorporate, while planning for and implementing the next wave of military treatment facility financing and contract management initiatives, such resource sharing lessons learned as the need for coherent, timely policies; clearly understood procedures; mutually beneficial incentives; and effective collaboration.

    Agency Affected: Department of Defense

 

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