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February 27, 2004:

Congressional Committees:

Subject: DOD and VA Health Care: Incentives Program for Sharing 

Combined, the Department of Defense (DOD) and the Department of 
Veterans Affairs (VA) provide health care services to about 12 million 
beneficiaries at an estimated cost of about $53 billion for fiscal year 
2004--$26.7 billion for DOD and $26.5 billion for VA. In 1982 the 
Congress passed the VA and DOD Health Resources Sharing and Emergency 
Operations Act (Sharing Act) to promote more cost-effective use of 
health care resources and more efficient delivery of care.[Footnote 1] 
Specifically, the Congress authorized military treatment facilities and 
VA medical centers to enter into sharing agreements to buy, sell, and 
barter medical and support services. To further encourage on-going 
collaboration, the Congress, in section 721 of the Bob Stump National 
Defense Authorization Act (NDAA) for Fiscal Year 2003[Footnote 2], 
directed the Secretary of Defense and the Secretary of Veterans Affairs 
to establish a joint incentives program to identify and provide 
incentives to implement, fund, and evaluate creative health care 
coordination and sharing initiatives between DOD and VA. To facilitate 
the program, each Secretary is required to contribute a minimum of $15 
million from each department's appropriation into an account 
established in the U. S. Treasury[Footnote 3] for each fiscal year from 
2004 through 2007. DOD's TRICARE Management Activity and VA's Medical 
Sharing Office administer the incentive fund program. The offices have 
jointly issued a request for proposals from DOD and VA medical 
facilities around the country.

The NDAA requires that we submit a report on the implementation and 
effectiveness of the program by February 28, 2004, and by February 28TH 
for each year thereafter that the program is in effect. As discussed 
with the committees of jurisdiction, since the program is in its 
initial development stage, our objective was limited to reviewing the 
status of the program's implementation phase--primarily the process for 
selecting proposals--during the first five months of fiscal year 2004. 
To do so, we reviewed the DOD's and VA's plans for implementing the 
DOD-VA Health Care Sharing Incentive Fund--including proposal 
submission guidelines and evaluation and selection criteria--and 
interviewed agency officials from DOD and VA involved in the oversight 
of the program. Our work was conducted from October 2003 through 
February 2004 in accordance with generally accepted government auditing 

Results in Brief:

During the first five months of the program DOD and VA have established 
criteria for evaluating proposals. As of February 25, 2004, the 
departments are reviewing 57 proposals that have been submitted. DOD 
and VA program officials have not established a firm date for final 
selection but anticipate it will take place during the summer of 2004. 
While the agencies have made progress in implementing the program, they 
have not made contributions to the fund; they anticipate doing so by 
March 31, 2004. VA has raised a concern whether services provided to 
veterans will have to be commensurate with its contributions to the 
sharing incentive fund. DOD and VA officials are discussing how the 
fund contributions will be used. DOD and VA officials agreed the 
information in this report is accurate.

Proposal Submission and Selection Process:

The 57 proposals that are under review by DOD and VA are considered 
concept proposals--they contain a broad range of sharing activities. 
DOD and VA agency officials at each submitting medical facility jointly 
developed these concept proposals. Examples of sharing services and 
resources included in the concept proposals are:

* magnetic resonance imaging,

* staffing,

* telemedicine,

* cardiac catheterization laboratories,

* outpatient care,

* sleep study analysis, and:

* information management/information technology.

According to program officials, the two agencies will review the 
concept proposals and select the most promising. The selection and 
evaluation criteria for the concept proposals include the following:

* support DOD's and VA's joint long-term approach to meeting the 
health care needs of their beneficiary populations,

* improve beneficiary access,

* exportability to other facilities,

* maximize the number of beneficiaries that would benefit from the 

* result in cost savings or cost avoidance,

* develop in-house capability at a lesser cost for services now 
obtained by contract, and:

* demonstrate that the initiative will be self-sustaining--that is, a 
separate source of funding other than the incentive fund for recurring 
costs--within one or two years of the initial award.

Officials at each location whose proposals are selected will be asked 
to submit a more detailed final proposal with a business case analysis 
that will be reviewed by DOD's and VA's Chief Financial Officers and 
approved by the interagency Health Executive Committee[Footnote 4].

Program Funding and Use of Funds:

VA has raised a concern about the extent to which restrictions on the 
use of its medical appropriations would continue to apply once funds 
from those appropriations are transferred to the DOD-VA Health Care 
Sharing Incentive Fund[Footnote 5]. DOD and VA officials are discussing 
how the fund contributions will be used and plan to reach agreement 
before final proposals for projects are selected. DOD and VA expect to 
transfer funds to the DOD-VA Health Care Sharing Incentive Fund by 
March 31, 2004, so that money is available when selection of final 
proposals is made during the summer of 2004.

DOD and VA program officials as well as DOD's and VA's Offices of 
General Counsel reviewed a draft of this report and provided technical 
comments, which were included where appropriate. They agreed the 
information in the report is accurate.

We are sending copies of this report to the Secretary of Defense, the 
Secretary of Veterans Affairs, and other interested parties. We will 
provide copies of this report to others upon request. In addition, the 
report is available at no charge on the GAO Web site at http:// If you or your staffs have any questions, please contact 
me at (202) 512-7101 or Michael T. Blair, Jr., at (404) 679-1944. Aditi 
Archer and Helen Desaulniers made key contributions to this report.

Signed by: 

Cynthia A. Bascetta:

Director, Health Care--Veterans' Health and Benefits Issues:

Congressional Committees:

The Honorable John Warner:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:

The Honorable Arlen Specter:
The Honorable Bob Graham:
Ranking Minority Member:
Committee on Veterans' Affairs:
United States Senate:

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

The Honorable Christopher Smith:
The Honorable Lane Evans:
Ranking Minority Member:
Committee on Veterans' Affairs:
House of Representatives:



[1] Pub. L. No. 97-174, 96 Stat. 70.

[2] Pub. L. No. 107-314, 721(a)(1), 116 Stat. 2589, 2595 (2002).

[3] DOD-VA Health Care Sharing Incentive Fund.

[4] The Health Executive Committee membership includes senior leaders 
from DOD and VA who are working to institutionalize DOD and VA sharing 
and collaboration to ensure the efficient use of health services and 
resources. The committee is co-chaired by the Assistant Secretary of 
Defense for Health Affairs and the Department of Veterans Affairs Under 
Secretary for Health. 

[5] VA's medical care appropriations are available for the expenses of 
medical services, medical administration, and medical facilities for VA 
beneficiaries. Section 1301(a) of title 31, United States Code, 
provides that appropriations shall be applied only to the objects for 
which they were made, except as otherwise authorized. In addition, 
section 1532 provides that, in the absence of statutory provisions to 
the contrary, appropriations authorized to be transferred from one 
account to another are available for the same purpose provided by the 
law appropriating the funds.