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entitled 'Defense Health Care: TRICARE Claims Processing Has Improved 
but Inefficiencies Remain' which was released on October 15, 2003.

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Report to the Committees on Armed Services, U.S. Senate and House of 
Representatives:

United States General Accounting Office:

GAO:

October 2003:

Defense Health Care:

TRICARE Claims Processing Has Improved but Inefficiencies Remain:

GAO-04-69:

GAO Highlights:

Highlights of GAO-04-69, a report to the Committees on Armed Services, 
U.S. Senate and House of Representatives 

Why GAO Did This Study:

Testifying before Congress in 2002, military beneficiary groups and 
civilian managed care support contractors described problems with the 
processing of TRICARE claims for civilian-provided care. These 
problems included slow payments and procedures that made claims 
processing inefficient.

The Bob Stump National Defense Authorization Act of 2003 required GAO 
to review improvements to TRICARE claims processing and continuing 
impediments to claims processing efficiency. Specifically, GAO 
describes (1) efforts to improve claims processing and changes in 
processing timeliness and (2) Department of Defense (DOD) procedures 
and data that continue to affect claims processing efficiency.

To identify improvements to claims processing and impediments to 
processing efficiency, GAO analyzed 1999 and 2002 claims data for 
changes in processing timeliness. GAO also interviewed and analyzed 
claims processing documentation from DOD officials, managed care 
support contractors, and claims processors.

What GAO Found:

In an effort to improve TRICARE claims processing, DOD and its managed 
care support (MCS) contractors have made changes that are designed to 
make it more efficient. First, they have jointly identified—and then 
eliminated or changed—certain DOD requirements they deemed inefficient 
and nonessential to accurate claims processing. For example, 
contractors are no longer required to hold claims with incomplete 
information and request the missing information from the provider or 
beneficiary. Instead, contractors may now return some claims with 
missing information. In another change, DOD eliminated 
preauthorization requirements for certain procedures and gave the MCS 
contractors more latitude for determining when preauthorizations are 
appropriate. To encourage providers to submit their claims 
electronically, DOD gave MCS contractors the authority to decide 
whether to adjudicate electronically submitted claims sooner than 
those submitted on paper. Further, MCS contractors have worked with 
their claims processors to implement new technologies for data input, 
claims routing, customer service, and claims submission. Finally, MCS 
contractors and their claims processors have improved the timeliness 
with which they process claims. In fiscal year 2002, claims processors 
processed over 97 percent of claims in 30 days or less—an improvement 
over fiscal year 1999, when 91 percent of claims were processed in 30 
days or less. 

Although DOD and its MCS contractors have made changes to improve 
claims processing, some DOD procedures and inaccuracies in its data 
continue to create inefficiencies in TRICARE claims processing. Some 
DOD procedures may create inefficiencies by inadvertently increasing 
the demand for customer service, which claims processors are required 
to provide. Additionally, inaccuracies in DOD eligibility data—data 
that are needed to process TRICARE claims—can contribute to claims 
processing delays or rework if, for example, claims must be 
reprocessed when errors are identified. Finally, some DOD procedures 
lead to rework for claims processors, either in the form of 
reprocessing claims or reprogramming processing software. For example, 
when DOD makes program changes to TRICARE to alter or create a health 
benefit, it does not adhere to any schedule. In 2002, DOD made 123 
program changes on 19 different dates throughout the year. Given the 
fact that implementing these changes often involves reprogramming and 
testing processing software, this approach can create rework for 
claims processors when DOD issues similar or related changes on 
separate occasions. 

What GAO Recommends:

To improve the efficiency of TRICARE claims processing, GAO recommends 
that DOD evaluate how it issues program changes and identify ways to 
improve the consolidation and scheduling of such changes. DOD 
concurred with the recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-69.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Majorie E. Kanof at 
(202) 512-7101.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

DOD, MCS Contractors, and Claims Processors Have Made Changes to 
Improve Claims Processing Efficiency, and Timeliness Has Improved:

DOD's Procedures and Inaccurate Data Continue to Create Some 
Inefficiencies in Claims Processing:

Conclusions:

Recommendation for Executive Action:

Agency Comments:

Appendix I: Scope and Methodology:

Appendix II: Comparison of Current and Future TRICARE Regions:

Appendix III: TRICARE Claims Flow:

Appendix IV: Health Care Service Records:

Appendix V: Comments from the Department of Defense:

Appendix VI: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Related GAO Products:

Tables:

Table 1: Regions, Managed Care Support Contractors, and Claims 
Processors:

Table 2: Percentage of TRICARE Claims Processed in 30 Days or Less in 
Fiscal Years 1999 and 2002:

Figures:

Figure 1: Current TRICARE Regions:

Figure 2: Future TRICARE Regions After TNEX Implementation:

Figure 3: TRICARE Claims Flow:

Abbreviations:

CDCF: central deductible catastrophic cap file:  

CMS: Centers for Medicare & Medicaid Services:  

DEERS: Defense Enrollment Eligibility Reporting System:  

DMDC: Defense Manpower Data Center:  

DOD: Department of Defense:  

DRG: diagnosis-related group:  

EMC: electronic media claims:  

HCSR: health care service record:  

HIPAA: Health Insurance Portability and Accountability Act of 1996:  

MCS: managed care support:  

MTF: military treatment facility:  

OCR: optical character recognition:  

PGBA: Palmetto Government Benefits Administrators:  

TED: TRICARE encounter data:  

TFL: TRICARE for Life:  

TMA: TRICARE Management Activity: 

TMAC: TRICARE maximum allowable charges 

WPS: Wisconsin Physician Services:

United States General Accounting Office:

Washington, DC 20548:

October 15, 2003:

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

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

In 2003, more than 8.7 million active duty personnel, their dependents, 
and retirees are eligible to receive health care through TRICARE, the 
military's $26.4 billion-per-year health care system. Medical care 
under TRICARE is provided by Department of Defense (DOD) personnel in 
military treatment facilities (MTF) or through civilian providers in 
civilian facilities. Civilian-provided care requires that providers or 
beneficiaries submit claims to DOD managed care support (MCS) 
contractors who, on behalf of TRICARE, are responsible for adjudicating 
and paying the claims according to established policies and procedures. 
The MCS contractors have each hired subcontractors, referred to as 
claims processors, to perform these functions. During fiscal year 2002, 
DOD's MCS contractors were responsible for processing approximately 42 
million TRICARE claims worth approximately $4.6 billion 
dollars.[Footnote 1]

Since its inception in 1995, TRICARE has garnered criticism over its 
claims processing performance. During 2002, for example, testimony 
before the House Armed Services Committee, Subcommittee on Military 
Personnel, discussed problems with the timeliness of claims 
payments.[Footnote 2] This testimony also identified DOD policies and 
procedures for claims processing that confuse beneficiaries and 
providers and create disincentives for electronic claims submission, 
which is more efficient than paper claims submission.

In response to concerns over claims processing, the Bob Stump National 
Defense Authorization Act of 2003[Footnote 3] directed us to report on 
improvements to TRICARE claims processing and continuing impediments to 
claims processing efficiency. Specifically, as agreed with the 
committees of jurisdiction, this report describes (1) DOD, MCS 
contractor, and claims processor efforts to improve TRICARE claims 
processing and changes in processing timeliness and (2) DOD procedures 
and data that continue to affect claims processing efficiency.

To identify improvements in TRICARE claims processing, we compared the 
timeliness with which DOD processed its claims between fiscal years 
1999 and 2002. To make this comparison, we obtained and analyzed data 
from health care service records (HCSR), which are the final records of 
TRICARE claims. To identify efforts to improve TRICARE claims 
processing, we interviewed and obtained documentation from officials 
and representatives from the TRICARE Management Activity (TMA), the DOD 
agency responsible for managing TRICARE; DOD's MCS contractors; and 
claims processors. To obtain information on TRICARE requirements that 
affect claims processing efficiency, we interviewed the same officials 
and representatives, along with beneficiary and provider 
representatives. We reviewed DOD's request for proposals for the new 
health care contracts that DOD awarded in August 2003, and we 
interviewed DOD and MCS contractor officials to determine how the new 
contracts might affect claims processing efficiency.[Footnote 4] We 
also reviewed our prior work on TRICARE and Medicare claims processing. 
Our review did not include claims processed under DOD's TFL program for 
Medicare-eligible beneficiaries because TFL is a separate program that 
follows different program rules and uses different claims processing 
procedures. We conducted our work from June 2002 through October 2003 
in accordance with generally accepted government auditing standards. 
For more on our scope and methodology, see appendix I.

Results in Brief:

In an effort to improve TRICARE claims processing, DOD and its MCS 
contractors have made changes that are designed to make it more 
efficient. First, they have jointly identified--and then eliminated or 
changed--certain DOD requirements they deemed inefficient and 
nonessential to accurate claims processing. For example, contractors 
are no longer required to hold claims with incomplete information and 
request the missing information from the provider or beneficiary. 
Instead, contractors may now return claims with missing information, as 
long as the necessary information cannot be supplied from in-house 
sources. In another change, DOD eliminated preauthorization 
requirements for certain procedures and gave the MCS contractors more 
latitude for determining when preauthorizations are appropriate. In an 
effort to encourage providers to submit their claims electronically, 
DOD gave MCS contractors the authority to decide whether to adjudicate 
electronically submitted claims sooner than those submitted on paper. 
Further, MCS contractors have worked with their claims processors to 
implement new technologies for data input, claims routing, customer 
service, and claims submission. Finally, MCS contractors and their 
claims processors have improved the timeliness with which they process 
claims. In fiscal year 2002, claims processors processed over 97 
percent of claims in 30 days or less--an improvement over fiscal year 
1999, when 91 percent of claims were processed in 30 days or less.

Although DOD and its MCS contractors have made changes to improve 
claims processing and MCS contractors have exceeded DOD's standard for 
processing timeliness, some DOD procedures and inaccuracies in its data 
continue to create inefficiencies in TRICARE claims processing. Some 
DOD procedures lead to rework for claims processors, either in the form 
of reprocessing claims or reprogramming processing software. For 
example, when DOD makes program changes to TRICARE to alter or create a 
health benefit, it does not adhere to any schedule. In 2002, DOD made 
123 program changes on 19 different dates throughout the year. Given 
the fact that implementing these changes often involves reprogramming 
and testing processing software, this approach can create rework for 
claims processors when DOD issues similar or related changes on 
separate occasions. Some DOD procedures may create inefficiencies by 
inadvertently increasing the demand for customer service, which claims 
processors are required to provide. For example, the method used for 
calculating TRICARE's liability when beneficiaries have other health 
insurance can lead to claim outcomes that are not understood by 
providers and beneficiaries. When providers and beneficiaries question 
such outcomes, claims processors must explain the benefit calculation. 
Finally, inaccuracies in DOD eligibility data--data that are needed to 
process TRICARE claims--can contribute to claims processing delays or 
rework if, for example, claims must be reprocessed when errors are 
identified.

We are recommending that the Secretary of Defense direct the Assistant 
Secretary of Defense for Health Affairs to evaluate DOD's process for 
issuing program changes and to identify ways to improve the 
consolidation and scheduling of such changes. In commenting on a draft 
of this report, DOD concurred with the report's findings and 
recommendation.

Background:

Under TRICARE, MTFs provide the majority of health care for 
beneficiaries. However, civilian providers supplement this care, and 
claims must be submitted by providers or beneficiaries to MCS 
contractors' claims processors for this civilian-provided care. There 
are three options under which TRICARE beneficiaries may obtain 
civilian-provided care:

* TRICARE Prime, a program in which beneficiaries enroll and receive 
care in a managed network similar to a health maintenance organization;

* TRICARE Extra, a program in which beneficiaries receive care from a 
network of preferred providers; and:

* TRICARE Standard, a fee-for-service benefit that requires no network 
use.

The Office of the Assistant Secretary of Defense for Health Affairs 
establishes TRICARE policies and procedures and has overall 
responsibility for the program. TMA, under Health Affairs, is 
responsible for awarding and administering contracts to MCS contractors 
that manage the delivery of care to beneficiaries in 11 regions. While 
the MCS contractors are ultimately responsible for claims processing 
activities, all of them have subcontracted with one of two claims 
processors that process the claims and handle beneficiary and provider 
inquiries associated with them. (Table 1 contains a list of regions, 
their MCS contractors, and their claims processors.):

Table 1: Regions, Managed Care Support Contractors, and Claims 
Processors:

Region: Northeast; MCS contractor: Sierra Military Health Services; 
Claims processor: Palmetto Government Benefits Administrators.

Region: Mid-Atlantic and Heartland; MCS contractor: Humana Military 
Healthcare Services; Claims processor: Palmetto Government Benefits 
Administrators.

Region: Southeast and Gulfsouth; MCS contractor: Humana Military 
Healthcare Services; Claims processor: Palmetto Government Benefits 
Administrators.

Region: Southwest; MCS contractor: Health Net Federal Services; Claims 
processor: Wisconsin Physicians Service.

Region: Central; MCS contractor: TriWest Healthcare Alliance, Inc.; 
Claims processor: Palmetto Government Benefits Administrators.

Region: Southern California, Golden Gate, and Hawaii-Pacific; MCS 
contractor: Health Net Federal Services; Claims processor: Palmetto 
Government Benefits Administrators.

Region: Northwest; MCS contractor: Health Net Federal Services; Claims 
processor: Wisconsin Physicians Service.

Source: DOD:

[End of table]

In August 2003, DOD awarded new civilian health care contracts, known 
as TNEX that will reorganize the 11 regions into 3--North, South, and 
West--with a single contract for each region.[Footnote 5] 
Implementation of these new contracts is expected to begin in June 
2004. See appendix II for maps depicting the current and future TRICARE 
regions.

Claims processing begins with the receipt of claims--either paper or 
electronic--and any supporting documentation that is submitted by 
providers and beneficiaries.[Footnote 6] Information from paper claims 
must be scanned or manually entered into the processing system used by 
the claims processor. Data from electronic claims automatically enter 
the system after the system verifies that each entry or field on the 
form contains appropriate data. Compared to paper claims, 
electronically submitted claims can be processed more efficiently 
because they do not require handling in the mailroom, document 
preparation, imaging, data entry, and storage of the original document. 
Furthermore, claims processors told us that because each field in an 
electronic claim must be completed before it is accepted into the 
processing system, electronic claims generally are more complete and 
have fewer errors from imaging and data entry than paper claims. As a 
result, they are more likely to be processed without manual 
intervention.

Once claims data enter the system, they are subject to automatic edits 
designed to ensure their accuracy and to determine how the claim will 
be adjudicated. For instance, one edit cross-checks the Defense 
Enrollment Eligibility Reporting System (DEERS) to verify 
beneficiaries' eligibility.[Footnote 7] At any time during this 
automated process, a claim can require manual intervention by claims 
processing employees to correct errors, supply missing data, or verify 
that the provided care was properly authorized, medically necessary, 
and appropriate. After adjudication, the claim is either paid or denied 
and the beneficiary and provider are notified of the outcome. The final 
record of the claim is sent to DOD in the form of a HCSR. HCSRs do not 
affect the amount of beneficiary or provider reimbursement, nor do they 
delay claims processing timeliness. (Appendix III contains a more 
detailed description of the claims processing flow. See app. IV for a 
more detailed description of the HCSR.):

DOD requires its MCS contractors to meet certain standards for claims 
processing timeliness. Specifically, DOD requires them to process 95 
percent of retained claims within 30 calendar days of receipt, 100 
percent of retained claims within 60 days, and 100 percent of all 
excluded claims within 120 days, unless DOD specifically directs a MCS 
contractor to continue holding for processing a claim or group of 
claims.[Footnote 8] DOD verifies whether MCS contractors are meeting 
timeliness standards by monitoring its database of HCSRs.

DOD, like other entities that offer health plans and are providers of 
health services, is required by the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) to use uniform standards for data 
code sets and electronic transactions, including claims 
filing.[Footnote 9] HIPAA was enacted to combat waste, fraud, and 
abuse; to improve the portability of health insurance coverage; and to 
simplify the administration of health care.[Footnote 10] Uniform 
standards for electronic filing will allow providers to use the same 
software to submit claims to all insurance plans, including TRICARE. 
However, providers retain the option of submitting claims on paper if 
they so choose.[Footnote 11] The compliance date for this requirement 
is October 15, 2003.[Footnote 12]

DOD, MCS Contractors, and Claims Processors Have Made Changes to 
Improve Claims Processing Efficiency, and Timeliness Has Improved:

DOD and its MCS contractors have made a number of changes to TRICARE 
claims processing since the beginning of 1999 that are designed to 
improve its efficiency. They have jointly identified certain procedural 
and adjudication requirements as nonessential to claims processing. 
These requirements have been eliminated or changed in an effort to 
reduce the need for manual intervention during processing and to 
encourage the electronic submission of claims. Furthermore, MCS 
contractors have worked with their claims processors to implement best 
industry practices designed to improve claims processing efficiency. 
These practices include the use of new technologies for data input, 
claims routing, customer service, and claims submission. Finally, MCS 
contractors, working with their claims processors, have improved the 
timeliness with which they adjudicate and pay claims.

DOD and the MCS Contractors Have Made Changes Designed to Improve 
Claims Processing Efficiency:

In July 1999, DOD and the MCS contractors instituted a joint initiative 
to improve claims processing efficiency that eliminated an existing 
requirement that claims processors hold claims submitted with 
incomplete information and obtain, if possible, the information needed 
to process the claim. Before July 1999, claims processors had been 
required to retain all claims with missing information, request this 
information from providers and beneficiaries if the information was not 
available from in-house sources--such as the DEERS database--and 
ultimately deny the claim if the information was not received within 35 
days. The claims processors reported that managing these claims and 
matching them with additional information when it was received 
increased their workload. Also, according to claims processors, the 
information was frequently received after the 35-day period elapsed. 
The claims processors would then have already denied the claim, and it 
would have to be resubmitted. With the elimination of the requirement, 
MCS contractors return claims with missing information, as long as the 
necessary information cannot be supplied from in-house sources. For 
example, a claim missing a required signature would be returned to the 
submitter. In contrast, a claim missing a beneficiary's date of birth 
would not be returned because this information could be found in the 
DEERS database.

DOD and the MCS contractors also jointly identified certain 
requirements that they determined were unlikely to alter payment or 
care decisions and that, if eliminated, would make claims processing 
more efficient. One joint DOD and MCS contractor initiative decreased 
the number of DOD-required preauthorizations and gave the MCS 
contractors more latitude to determine when preauthorizations are 
necessary.[Footnote 13] DOD eliminated preauthorization requirements 
for 21 procedures, including cataract removal, hernia repair, caesarian 
section, and tonsillectomy. Although preauthorizations are used to 
ensure the medical necessity of and appropriate access to health care 
before the care is provided, they also can delay claims processing 
because they often require manual intervention by claims processing 
staff to ensure the care was properly ordered. By giving MCS 
contractors the authority to eliminate preauthorization requirements 
that were not essential to accurate claims adjudication, certain 
categories of claims could be processed and reimbursed with less manual 
intervention.

Further, a joint initiative intended to create an incentive for 
providers to submit claims electronically resulted in DOD giving MCS 
contractors the authority to decide whether to adjudicate 
electronically submitted claims at a faster rate than those submitted 
on paper.[Footnote 14] Electronically submitted claims can be processed 
more efficiently than paper claims. However, prior to this initiative, 
MCS contractors paid claims as they were received and adjudicated with 
no distinction between paper or electronic submission. In January 2000, 
DOD gave MCS contractors the authority to decide to pay electronically 
submitted claims as soon as they were processed and to delay payment of 
paper-submitted claims, as long as the contractors met the basic 
overall standards for claims processing timeliness. In fiscal year 
2003, two MCS contractors responsible for 5 of the 11 TRICARE regions 
decided to delay payment on some types of provider-submitted paper 
claims.[Footnote 15] However, MCS contractors told us it was too soon 
to determine whether this change has resulted in providers submitting 
more claims electronically.

DOD also adopted another initiative intended to increase the number of 
electronically submitted claims. As of July 1, 2003, it changed the 
requirements for provider identification on claims forms, making it 
easier for providers to submit their claims electronically.[Footnote 
16] The change allows providers to submit claims using their Medicare 
identification number or another alternate provider identifier. Before 
this change, the provider identification number required for TRICARE 
claims was not compatible with the software used by many providers to 
submit claims. As a result, many providers had to modify their claim 
systems and retrain staff if they wanted to submit TRICARE claims 
electronically. Because TRICARE is generally a small portion of their 
business, providers had little incentive to make these 
changes.[Footnote 17]

In addition to their collaborative efforts with DOD, claims processors, 
since the beginning of 1999, have implemented best industry practices, 
including new technologies designed to increase the efficiency of 
claims processing. These technologies include:

* using optical character recognition (OCR) technology, which enables 
the efficient, cost-effective, and high-quality capturing of claims 
data without any manual data entry;

* providing claims processing staff with the capability to immediately 
resolve and adjust claim errors when responding to provider and 
beneficiary inquiries, instead of requiring them to hold corrections 
for resolution at a later date; and:

* employing electronic routing systems to send simpler claims to less 
experienced processors and more complex ones to those who have been 
trained to adjudicate them.[Footnote 18]

Claims processors have also adopted best industry practices by 
providing customer service via the Internet and by providing the 
capability for Internet claim submission. To do this, both claims 
processors have created Web sites that providers and beneficiaries can 
use to inquire about the status of submitted claims and to obtain 
patient and benefit information. In addition, one claims processor 
gives physicians the option of submitting claims via the Internet. In 
general, claims submitted via the Internet can be immediately processed 
without human intervention. According to this claims processor, the 
current number of Internet claim submissions is small[Footnote 19] but 
is likely to grow because of the ease of submission and the speed at 
which these claims are processed. MCS contractors told us that they 
have plans for additional Web-based enhancements that will further 
simplify TRICARE claims processing and provide additional services for 
both providers and beneficiaries, such as allowing institutions to 
submit claims via the Internet and providing additional self-help 
features.

MCS Contractors' Claims Processors Have Improved Claims Processing 
Timeliness:

In fiscal year 2002, MCS contractors' claims processors processed over 
97 percent of claims in 30 days or less--exceeding DOD's standard that 
95 percent of retained claims be processed within 30 calendar 
days.[Footnote 20] This is an improvement over fiscal year 1999, when 
they processed 91 percent of all claims within 30 days.[Footnote 21] 
(See table 2.) During this time period, the number of claims processed 
increased 43 percent, from 29.2 million in fiscal year 1999 to 41.7 
million in fiscal year 2002.[Footnote 22]

Table 2: Percentage of TRICARE Claims Processed in 30 Days or Less in 
Fiscal Years 1999 and 2002:

All claims[A]; 1999: Percent: 91.4; 1999: Number (in thousands): 
28,413; 2002: Percent: 97.2; 2002: Number (in thousands): 
38,965.

Method of claim submission: 

Electronic; 1999: Percent: 97.7; 1999: Number (in thousands): 11,968; 
2002: Percent: 99.0; 2002: Number (in thousands): 19,533.

Paper; 1999: Percent: 86.8; 1999: Number (in thousands): 16,445; 
2002: Percent: 95.4; 2002: Number (in thousands): 19,432.

Type of provider[B]: 

Professional; 1999: Percent: 88.5; 1999: Number (in thousands): 18,770; 
2002: Percent: 96.0; 2002: Number (in thousands): 24,923.

Pharmacy; 1999: Percent: 97.9; 1999: Number (in thousands): 9,327; 
2002: Percent: 99.6; 2002: Number (in thousands): 13,660.

Institutional; 1999: Percent: 69.7; 1999: Number (in thousands): 316; 
2002: Percent: 86.5; 2002: Number (in thousands): 382.

Dollar amount paid by DOD: 

Less than $100; 1999: Percent: 92.5; 1999: Number (in thousands): 
24,832; 2002: Percent: 97.5; 2002: Number (in thousands): 
32,469.

$100 to $999; 1999: Percent: 84.9; 1999: Number (in thousands): 3,205; 
2002: Percent: 96.2; 2002: Number (in thousands): 5,991.

$1,000 or more; 1999: Percent: 72.3; 1999: Number (in thousands): 376; 
2002: Percent: 89.1; 2002: Number (in thousands): 505.

Source: DOD.

Note: GAO analysis of DOD claims data.

[A] These calculations include only claims for health care provided 
inside the United States. They do not include Senior Pharmacy claims 
and Medicare claims. In addition, they do not include claims if the 
final record of a claim was modified due to reprocessing.

[B] Professional claims represent care rendered by physicians and other 
health care providers, such as physical therapists. Pharmacy claims are 
claims for prescription drugs. Most institutional claims represent care 
provided by hospitals.

[End of table]

Even though MCS contractors' processing timeliness increased in all 
categories of claims from fiscal year 1999 to fiscal year 2002, 
timeliness in each category varied. For instance, pharmacy claims, 
which in fiscal year 2002 constituted about 35 percent of all claims, 
were almost always processed within 30 days because they were submitted 
electronically in nearly all cases. On the other hand, in fiscal year 
2002, 86.5 percent of institutional claims and 89.1 percent of claims 
with government liability of $1,000 or more were processed within 30 
days or less. Institutional and high-dollar claims are usually more 
complicated and often require medical review, adding to processing 
time. However, MCS contractors still met DOD's standard for overall 
processing timeliness because institutional claims comprised only about 
1 percent of overall claims, and claims with liability over $1,000 
comprised only 1.3 percent of contractors' claims. Therefore, these 
claims had little effect on MCS contractors' ability to meet DOD's 
standard.

DOD's Procedures and Inaccurate Data Continue to Create Some 
Inefficiencies in Claims Processing:

Although DOD and MSC contractors have made changes to make claims 
processing more efficient, some of DOD's procedures, as well as 
inaccuracies in its data, continue to create inefficiencies in TRICARE 
claims processing. In some cases, DOD's procedures lead to rework for 
claims processors, either in the form of reprocessing claims or 
reprogramming processing software. Other DOD procedures, such as the 
method for calculating TRICARE's liability when beneficiaries have 
other health insurance, lead to claim outcomes that are not understood 
by providers and beneficiaries. This confusion may increase claims 
processors' workload when there is additional demand for them to 
provide customer service. Finally, inaccuracies in DOD eligibility data 
contribute to claims processing delays and rework, which create 
inefficiencies in TRICARE claims processing.

DOD's Procedures for Making Program Changes to TRICARE Lead to Rework 
and Increased Demand for Customer Service:

DOD's procedures for making program changes to TRICARE create 
inefficiencies in claims processing. Program changes include the 
introduction of new exclusions or inclusions in coverage, the creation 
of new benefit packages for special populations, revisions to billing 
procedures, changes in reporting requirements, or other administrative 
changes. DOD does not adhere to a set schedule for making health 
benefit or other program changes. In 2002, DOD made 123 program changes 
on 19 different dates throughout the year.[Footnote 23] For example, in 
May 2002, DOD made 41 changes on 4 different days. DOD officials told 
us they had limited control over scheduling some program changes 
because approximately one-third of changes result from new laws or 
regulations.

Implementing program changes often involves reprogramming and testing 
processing software, and not adhering to a schedule for issuing changes 
can create extra work for claims processors. When unscheduled changes 
give claims processors little or no time to anticipate, implement, and 
test the changes, claims processors said they are more likely to make 
errors in their programming. These programming errors must be corrected 
and create additional work when incorrectly processed claims must be 
reprocessed.

In addition, when DOD has issued similar or related changes on separate 
occasions, claims processors have needed to reprogram their software on 
multiple occasions for a single benefit area. While DOD has made some 
attempts to issue changes at the same time, three of the four MCS 
contractors said these attempts to consolidate changes have, in some 
cases, delayed the implementation of some changes. They said that such 
delays result either in beneficiaries not receiving the benefits of a 
change as soon as possible or in claims processing rework if 
adjudicated claims are retroactively affected and must be reprocessed.

Unscheduled changes also make it difficult for providers and 
beneficiaries to account for or learn about recent changes. When these 
changes result in claims outcomes that providers and beneficiaries do 
not understand, claims processors experience demands for customer 
service to explain the outcomes, even if the claims in question have 
been properly adjudicated. For example, according to a claims 
processor, providers often require customer service when program 
changes have added to or deleted codes that they use to bill for 
procedures. When this happens, providers become confused when the 
amounts on recently adjudicated claims differ from the amounts they 
previously were reimbursed for identical services.

MCS contractors are required to educate providers and beneficiaries 
about policies and procedures that have an impact on claims processing-
-such as new benefits or changes in billing requirements.[Footnote 24] 
However, because TRICARE is often a relatively small portion of most 
providers' business, providers have little incentive to participate in 
educational seminars or to read the many bulletins and updates to stay 
current on the frequent program changes. Therefore, MCS contractors 
told us that they also maintain relationships with provider 
associations and provide one-on-one education through phone 
conversations or on-site visits to individual providers. Most 
educational efforts are directed at providers because beneficiaries 
submit few claims. However, MCS contractors publish periodic 
newsletters for beneficiaries and provide beneficiary briefings.

DOD's Procedures for the Coordination of the TRICARE Benefit with Other 
Insurers May Increase Demand for Customer Service:

According to DOD officials, MCS contractors, and claims processors, 
DOD's procedures for calculating TRICARE liability when beneficiaries 
have other health insurance is the claims processing area that causes 
the most confusion for providers and beneficiaries.[Footnote 25] 
Officials told us that providers and beneficiaries frequently 
misunderstand the outcomes of claims involving other health insurance. 
Officials told us that TRICARE providers and beneficiaries are often 
confused because in many cases TRICARE does not provide any payment 
when a beneficiary has other health insurance.[Footnote 26] In these 
cases, there is no TRICARE cost share because the other health 
insurance reimbursement is equal to or greater than the reimbursement 
that TRICARE allows. When providers and beneficiaries question such 
decisions, claims processors must explain TRICARE's benefit 
calculation. This increases the demand for customer service, which 
creates inefficiencies in TRICARE claims processing. One MCS contractor 
told us that about 10 percent of its priority inquiries during 
September and October 2002 were related to questions about other health 
insurance.[Footnote 27]

Although DOD officials, MCS contractors, and claims processors all told 
us that the procedures for calculating TRICARE liability when 
beneficiaries have other health insurance result in inefficiencies in 
claims processing, the extent of this problem has not been determined. 
MCS contractors and claims processors could provide very little data 
demonstrating the impact of these procedures on the efficiency of 
claims processing. Furthermore, DOD officials told us that when the new 
contracts for civilian-provided care are implemented, the procedures 
for calculating TRICARE liability when beneficiaries have other health 
insurance will be simplified.

DOD's Procedure for Determining Responsibility for Processing 
Beneficiaries' Claims Contributes to Rework:

DOD's procedure for determining which contractor is responsible for 
beneficiaries' claims creates inefficiencies in TRICARE claims 
processing. Confusion over this responsibility can lead to MCS 
contractors receiving--and in some cases beginning to process--claims 
over which they have no jurisdiction. These improperly submitted claims 
must eventually be reprocessed by another MCS contractor. Under TRICARE 
rules, an MCS contractor is responsible for processing all the claims 
of beneficiaries who live or are enrolled in its region regardless of 
the region of the country where care was received. As a result, when 
beneficiaries receive care in regions where they do not live, some 
providers incorrectly submit claims to the MCS contractor responsible 
for the region.[Footnote 28] When providers submit claims to the 
incorrect MCS contractor, the claims processor must then notify the 
provider and forward these claims to the MCS contractor with proper 
jurisdiction. According to claims processors, out-of-jurisdiction 
submission is the main reason for returned claims.[Footnote 29] In 
fiscal year 2002, officials from one claims processor told us they 
returned nearly 1 million of the claims they received, and officials 
from the other claims processor said they returned over 400,000 
received claims.[Footnote 30] Under the terms of TNEX, jurisdictional 
problems are likely to be reduced when the 11 current regions will be 
replaced by 3 larger ones.

Inaccuracy of DOD Data Used to Verify Eligibility Creates Processing 
Delays and Rework:

Inaccuracies in DOD's DEERS data create delays in the processing of 
claims. Processors are required to use the DEERS database to verify the 
eligibility of TRICARE beneficiaries, but when these data are 
inaccurate, the related claims cannot always be processed or they may 
be processed incorrectly. There are two main reasons why DEERS 
eligibility data are incorrect. First, TRICARE beneficiaries, who are 
responsible for keeping their personnel data current, do not always 
report changes--such as marriage, divorce, or the birth of a child--
that may affect their dependents' eligibility status. Second, when the 
military status of TRICARE beneficiaries changes, the services may not 
report these changes to update the database on time--even though these 
changes in status can affect TRICARE eligibility. As a result, DEERS 
may not always indicate whether beneficiaries have moved from inactive 
reserve to active status or if they have changed the TRICARE option 
through which they are receiving their health care. Moreover, when 
beneficiaries retire or change their branch of service, these changes 
may not be correctly reflected in DEERS on time.

According to DOD officials, MCS contractors are currently only allowed 
to access and change information related to TRICARE enrollments that 
are less than 289 days old.[Footnote 31] All other changes needed to 
update the database are handled by DMDC, the contractor who maintains 
DEERS for DOD. Without timely and accurate eligibility data, MCS 
contractors must delay processing some claims whose outcomes are 
contingent on changes to DEERS until DMDC makes the necessary 
corrections. According to a DOD contractor, as of June 2003, about 
1,000 military sponsors and their dependents had claims that could not 
be immediately processed because of problems stemming from DEERS.

In other cases, claims are processed with inaccurate data from DEERS, 
leading to claim outcomes that are incorrect. For example, when 
reservists are mobilized to active duty, their DEERS file must reflect 
this or their dependents will appear to be ineligible for services and 
denied care. Further, if DEERS does not indicate the correct enrollment 
status for a dependent, his or her claim might be denied or if it is 
paid, may result in copayment charges that might not have been 
required. Claims with incorrect outcomes decrease claims processing 
efficiency because they must be reprocessed when errors are identified 
and often require additional customer service. According to MCS 
contractors and claims processors, inaccuracies in DOD's DEERS are 
responsible for increased demands for customer service and claims 
processing rework. However, MCS contractors told us they have no 
specific data that demonstrate increased demands for customer service 
or record how much rework is related to problems in DEERS.

With the implementation of TNEX contracts, DOD will be upgrading the 
existing DEERS system to New DEERS. According to a DOD official, New 
DEERS will be easier to program than the existing DEERS and will help 
ensure that some beneficiary changes--such as address and 
jurisdictional changes--are immediately reflected in the system. 
However, problems related to beneficiaries' failure to notify the 
system of changes may continue. In addition, with the implementation of 
TNEX, MCS contractors will not be allowed to access and change 
enrollment information that is more than 60--rather than 289--days old.

Conclusions:

Since fiscal year 1999, the timeliness of TRICARE claims processing has 
improved, and it currently exceeds DOD's timeliness standards. During 
this time, DOD and its MCS contractors have also made a number of 
changes, both procedural and technological, to TRICARE claims 
processing that are intended to improve its efficiency. However, some 
DOD procedures result in inefficiencies in TRICARE claims processing. 
Specifically, DOD's procedures for introducing program changes continue 
to create additional work and increased levels of provider and 
beneficiary inquiries, even though DOD has taken some steps to improve 
the process for scheduling program changes. DOD clearly faces a number 
of considerations when determining how to schedule program changes and 
cannot always control when legislative changes must be implemented. 
However, because MSC contractors have raised significant concerns about 
the scheduling process, it appears that further consolidation of 
program changes and improvements in scheduling may be warranted.

Other inefficiencies may result from procedures for calculating the 
TRICARE liability when beneficiaries have other health insurance, from 
confusion over DOD's procedure for determining which contractor is 
responsible for beneficiaries' claims, and from inaccuracies in DOD 
data used to verify TRICARE eligibility. Inefficiencies resulting from 
these procedures and inaccurate data may be reduced once the new 
contracts for civilian-provided health care are implemented. However, 
at this time it is not possible to determine the extent to which these 
inefficiencies may be affected by the implementation of the new 
contracts.

Recommendation for Executive Action:

To improve the efficiency of TRICARE claims processing, we recommend 
that the Secretary of Defense direct the Assistant Secretary of Defense 
for Health Affairs to evaluate DOD's process for issuing program 
changes and to identify ways to improve the consolidation and 
scheduling of such changes.

Agency Comments:

DOD provided written comments on a draft of this report. (See app. V.) 
DOD concurred with the report's findings and recommendation.

In its written comments, DOD noted that one of the constraints in 
consolidating changes to TRICARE contracts is the variation in 
effective revisions and other program enhancements, sometimes arising 
from statutory effective dates for new provisions. However, DOD said it 
would work to improve consolidations and scheduling of changes as it 
transitions to the new TRICARE contracts over the next 18 months.

We are sending copies of this report to the Secretary of Defense, 
appropriate congressional committees, and other interested parties. 
Copies will also be made available to others upon request. In addition, 
the report is available at no charge on the GAO Web site at http://
www.gao.gov. If you or your staff have questions about this report, 
please contact me at (202) 512-7101. Other contacts and staff 
acknowledgments are listed in appendix VI.

Marjorie E. Kanof 
Director, Health Care--Clinical and Military Health Care Issues:

Signed by Marjorie E. Kanof: 

[End of section]

Appendix I: Scope and Methodology:

To identify improvements in claims processing timeliness, we compared 
the timeliness with which the Department of Defense (DOD) processed its 
claims between fiscal years 1999 and 2002. To do this we asked DOD to 
prepare two spreadsheets using the database of health care service 
records (HCSR). The first spreadsheet provided information on claims 
processing time and included only initial[Footnote 32] claim 
submissions that had been processed to completion for each year, 
stratified by type of claim (professional, pharmacy, and 
institutional), processing time (less than or equal to 15 days, 16-30 
days, 31-60 days, 61-120 days, and greater than 120 days), submission 
method (electronic or paper), and the dollar amount paid by DOD (less 
than or equal to $0, greater than $0 and less than $100, $100 to $999, 
$1,000 to $4,999, $5,000 to $9,999, $10,000 to $99,999, and $100,000 
and more). The second spreadsheet included all claims processed to 
completion for each year, stratified by type of claim (professional, 
pharmacy, and institutional), submission method (electronic or paper), 
the dollar amount paid by DOD (less than or equal to $0 and greater 
than $0), the presence or absence of other health insurance, and denied 
claims. Both of these spreadsheets excluded claims for health care 
provided outside the United States as well as Senior Pharmacy claims, 
TRICARE for Life (TFL) claims, and Medicare claims from Base 
Realignment and Closure sites. These types of claims were excluded 
because they follow different program rules and use different claims 
processing procedures. We evaluated the reliability of the HCSR 
database by obtaining information about DOD's efforts to ensure its 
reliability and by assessing the consistency of the resulting data by 
comparing it with internal DOD reports that were produced using another 
database. Through this evaluation we determined that the data were 
sufficiently reliable to provide information on the timeliness of 
claims processing. However, we did not independently review the 
computer programs DOD used to prepare these spreadsheets.

To identify DOD efforts to improve TRICARE claims processing, we 
interviewed and obtained documentation from officials at (1) the 
TRICARE Management Activity (TMA) in Aurora, Colo., (2) the four 
managed care support (MSC) contractors--Sierra Military Health 
Services, Inc. in Baltimore, Md.; Humana Military Healthcare Services 
in Louisville, Ky.; TriWest Healthcare Alliance in Phoenix, Ariz.; and 
Health Net Federal Services in Rancho Cordova, Calif., and (3) the two 
claims processing subcontractors, Palmetto Government Benefits 
Administrators (PGBA) in Surfside Beach, S.C., and Wisconsin Physician 
Services (WPS) in Madison, Wis.

To describe how DOD procedures and data affect claims processing 
efficiency, we interviewed and obtained documentation from officials at 
TMA, the four MSC contractors, and claims processing subcontractors. We 
reviewed TRICARE's process for creating a final record of a processed 
claim, looking for inefficiencies in the process of creating HCSRs and 
comparing the process with one that will be used to create data records 
for TNEX. We obtained beneficiaries' views on claims efficiencies by 
interviewing and obtaining documentation from officials from the 
Military Coalition, an organization representing the members of the 
uniformed services. We also reviewed our prior work on TRICARE and 
Medicare claims processing. In addition, we obtained data from DOD's 
Change Order Tracking System to identify the number of program changes 
DOD made in 1999, 2000, 2001, and 2002. We evaluated the reliability of 
the 1999 and 2000 database by comparing it with lists of change orders 
obtained from the MCS contractors, who were charged with implementing 
those change orders. This comparison indicated that the data were 
sufficiently reliable for us to use and, therefore, we did not do a 
similar comparison for data from 2001 and 2002.

To identify areas where DOD procedures and data might have affected 
claims processing efficiency, we identified the major differences 
between processing TRICARE claims and processing commercial or Medicare 
claims. We confirmed this information in meetings with officials from 
the Centers for Medicare & Medicaid Services (CMS) and with two of its 
claims processing subcontractors--PGBA and WPS--who also process 
commercial healthcare claims. We also obtained comparison information 
on claims processing from officials from the American Medical 
Association and the Health Insurance Association of America.

Finally, we obtained information from DOD on its next generation of 
TRICARE contracts, TNEX, to identify how claims processing may change 
in the future. We also interviewed and obtained documentation from DOD 
and CMS experts on the Health Insurance Portability and Accountability 
Act of 1996 (HIPAA) to determine how it may affect claims processing 
efficiency.

Our review did not include claims processed under DOD's TFL program 
because TFL is a supplemental insurance program that pays second to 
Medicare and follows some different claims processing procedures. We 
performed our work from June 2002 through October 2003 in accordance 
with generally accepted government accounting standards.

[End of section]

Appendix II: Comparison of Current and Future TRICARE Regions:

The shaded areas in figure 1 represent the 11 current TRICARE 
geographic regions. The shaded areas in figure 2 represent the 3 
planned TRICARE geographic regions under the TNEX contracts that were 
awarded in August 2003.

Figure 1: Current TRICARE Regions:

[See PDF for image]

[End of figure]

Figure 2: Future TRICARE Regions After TNEX Implementation:

[See PDF for image]

[End of figure]

[End of section]

Appendix III: TRICARE Claims Flow:

TRICARE claims processing begins when claims processors receive claims 
in one of three ways--on paper, electronically, or via the 
Internet.[Footnote 33] Paper claims are sent to a unique post office 
box for each TRICARE contract. Optical character recognition (OCR) 
technology is used to enter paper claims directly into the processing 
system whenever possible. If this is not possible, claims are manually 
entered into the system through interactive data entry. The claims 
processing system preedits electronic media claims (EMC) and Internet-
submitted claims before accepting them into the system to ensure that 
the required fields contain appropriate data. For instance, system 
edits ensure that the fields identifying who is submitting the claim 
are complete.

Once claims enter the processing system, paper and electronic claims 
are processed similarly. The processing system either automatically 
finalizes claims[Footnote 34] or identifies that they require manual 
intervention, deferring finalization. Some manual intervention results 
from incorrect or missing claims data, in which case claims processors 
obtain the needed information from MCS contractor-maintained files or 
request additional information from providers or beneficiaries before 
claims processing is resumed. Other manual reviews, resulting from 
claim edits that stop the process, ensure care was medically necessary 
and properly authorized.

As claims flow through the processing system, computer edits are 
applied to each claim to ensure the precision and reliability of claim 
data and to determine how the claim will be adjudicated. Among these 
edits are:

* validity and consistency edits that confirm the data are accurate and 
uniform;[Footnote 35]

* provider edits that ensure only credentialed providers are reimbursed 
for care and that identify the specific location services were 
rendered, in order to apply the correct payment, including any 
discounts agreed to by contracted providers;

* Defense Enrollment Eligibility Reporting System (DEERS) edits that 
verify beneficiaries' eligibility for TRICARE and whether they are 
enrolled in Prime;

* historical edits that confirm services rendered to a beneficiary are 
in accordance with past utilization of care--such as examining any 
dramatic changes in a beneficiary's use of health care services;

* edits that determine the benefits that TRICARE will pay and that 
validate physician preauthorizations and referrals when they are 
required;

* ClaimCheck edits that help prevent overpayment by analyzing 
relationships between medical procedure codes;

* duplicate logic reviews that ensure claims are not paid twice by 
inspecting dates of service, provider numbers, types of service, and 
procedure codes; edits that access pricing files to determine the 
amount TRICARE can pay for provided services;[Footnote 36] and:

* edits that access the central deductible catastrophic cap file (CDCF) 
to determine the payment after deductibles are applied.[Footnote 37]

Once claims are finalized, the system mails payments and explanations 
of benefits to providers and beneficiaries and updates provider file 
information and beneficiaries' claim histories.

After claims processing is complete, claims processors send Health Care 
Service Records (HCSR) electronically to the Department of Defense 
(DOD), where HCSRs are subjected to an additional set of validity and 
consistency edits. DOD maintains and archives HCSRs, which are the 
final documentation of each claim's adjudication. DOD uses HCSRs for 
monitoring contractor performance, financial oversight, audit 
accountability, and fraud and abuse detection. See appendix IV for 
additional information on HCSRs. See figure 3 for an overview of EMC, 
Internet-submitted, and paper claim processing flow.

Figure 3: TRICARE Claims Flow:

[See PDF for image]

Note: The following is a list of the abbreviations used in this figure.

Auth/Ref: preauthorizations and referrals: 

CDCF: central deductible catastrophic cap file: 

DEERS: Defense Enrollment Eligibility Reporting System: 

DOD: Department of Defense: 

DRG: diagnosis-related group:
 
EMC: electronic media claims: 

HCSR: health care service record: 

OCR: optical character recognition: 

TMAC: TRICARE maximum allowable charges:

[A] At any point between Interactive Data Entry and Pricing, processing 
can be deferred and the claim can loop back to obtain additional 
information, usually requiring manual intervention.

[End of figure]

[End of section]

Appendix IV: Health Care Service Records:

The Department of Defense (DOD) requires claims processors to create an 
electronic record of each claim called a Health Care Service Record 
(HCSR). DOD uses HCSRs to ensure compliance with TRICARE requirements 
and provide standardized information on medical services provided to 
TRICARE beneficiaries. Claims processors create HCSRs either during 
claims processing or after claim adjudication, depending on the system 
they have developed. Claims processors then submit the HCSRs to DOD. 
Before HCSRs are accepted into DOD's database, they are subject to many 
edits designed to ensure that the data are correct and in a standard 
format. HCSRs do not affect the amount of beneficiary or provider 
reimbursement, nor does creating them delay claims processing.

When a HCSR fails an edit, claims processors must resolve the problem 
before the data can be added to the HCSR database.[Footnote 38] Most 
HCSRs are correctly rejected because they do not conform to DOD's 
specifications, such as when a required data element is not present. 
However, according to claims processors and DOD officials, in a very 
small percentage of cases HCSRs are rejected because inaccuracies in 
DOD's editing programs incorrectly reject them. For example, HCSRs were 
erroneously rejected when DOD changed the codes used by claims 
processors to identify services and procedures but did not modify its 
own edits to reflect these changes. This error was subsequently 
corrected when claims processors identified the problem.

HCSRs are useful to DOD. By requiring that claims processors produce 
data in a format amenable to its edits, DOD attempts to ensure that MCS 
contractors are following TRICARE requirements. In addition, DOD uses 
the HCSR database for other purposes, including financial oversight and 
fraud and abuse detection. HCSR data are also used in fraud 
investigations conducted by other departments and agencies, including 
the Department of Justice, Federal Bureau of Investigation, and Defense 
Criminal Investigative Service.

Under the terms of the TNEX contracts, DOD will require claims 
processors to submit TRICARE encounter data (TED) records instead of 
HCSRs.[Footnote 39] DOD, MCS contractors, and claims processors agree 
that TEDs is a simpler format for claims records. DOD estimates that 
the number of records submitted may be reduced by about 1 million 
annually under TNEX.

[End of section]

Appendix V: Comments from the Department of Defense:

THE ASSISTANT SECRETARY OF DEFENSE:

1200 DEFENSE PENTAGON WASHINGTON, DC 20301-1200:

HEALTH AFFAIRS:

OCT 9 2003:

Ms. Marjorie E. Kanof:

Director, Health Care-Clinical and Military Health Care Issues U.S. 
General Accounting Office:

Washington, DC 20548:

Dear Ms. Kanof:

This is the Department of Defense (DoD) response to the General 
Accounting Office (GAO) draft report, "DEFENSE HEALTH CARE: TRICARE 
Claims Processing Has Improved but Inefficiencies Remain," dated 
September 12, 2003 (GAO Code 290191, GAO-04-69).

Thank you for the opportunity to review and comment on the draft 
report. Overall, I concur with the findings of the audit. As you noted 
in the draft report, substantial efforts to improve TRICARE claims 
processing have been undertaken, and claims processing timeliness has 
improved dramatically.

The GAO recommended that Assistant Secretary of Defense for Health 
Affairs evaluate the process for issuing program changes and to 
identify ways to improve the consolidation and scheduling of changes. 
We concur with this recommendation, and will work to implement it as we 
transition to the new TRICARE contracts over the next 18 months. We 
note that one of the constraints on consolidation of changes to TRICARE 
contracts is the variation in effective dates for benefit revisions and 
other program enhancements, sometimes arising from the statutory 
effective dates for new provisions.

Please feel free to address any questions to my project officers on 
this matter, Mr. Thomas Osoba/ TRICARE Management Activity Operations 
at (303) 676-3492 or Mr. Gunther J. Zimmerman (GAO/IG Liaison) at (703) 
681-3492.

Sincerely,

Signed by E.P. Wyatt for William Winkenwerder, Jr. MD

GAO DRAFT REPORT DATED SEPTEMBER 12, 2003 GAO-04-69 (GAO CODE 290191):

"DEFENSE HEALTH CARE: TRICARE Claims Processing Has Improved but 
Inefficiencies Remain":

DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATION:

RECOMMENDATION 1: The General Accounting Office (GAO) recommended that, 
the Secretary of Defense direct the Assistant Secretary of Defense for 
Health Affairs to evaluate their process for issuing program changes 
and to identify ways to improve the consolidation and scheduling of 
changes. (p.26/GAO Draft Report):

DoD RESPONSE: We concur with this recommendation, and will work to 
implement it as we transition to the new TRICARE contracts over the 
next IS months. We note that one of the constraints on consolidation of 
changes to TRICARE contracts is the variation in effective dales for 
benefit revisions and other program enhancements, sometimes arising 
from the statutory effective dates for new provisions.

[End of section]

Appendix VI: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Kristi Peterson, (202) 512-7951 Lois Shoemaker, (404) 679-1806:

Acknowledgments:

In addition to those named above, key contributors to this report were 
Cynthia Forbes, Krister Friday, and John Oh.

[End of section]

Related GAO Products:

Defense Health Care: Oversight of the TRICARE Civilian Provider Network 
Should Be Improved. GAO-03-928. Washington, D.C.: July 31, 2003.

Defense Health Care: Oversight of the Adequacy of TRICARE's Civilian 
Provider Network Has Weaknesses. GAO-03-592T. Washington, D.C.: March 
27, 2003.

Defense Health Care: Most Reservists Have Civilian Health Coverage but 
More Assistance Is Needed When TRICARE Is Used. GAO-02-829. Washington, 
D.C.: September 6, 2002.

Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians' 
Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.

Defense Health Care: Across-the-Board Physician Rate Increases Would be 
Costly and Unnecessary. GAO-01-620. Washington, D.C.: May 24, 2001.

Defense Health Care: Continued Management Focus Key to Settling TRICARE 
Change Orders Quickly. GAO-01-513. Washington, D.C.: April 30, 2001.

Defense Health Care: Tri-Service Strategy Needed to Justify Medical 
Resources for Readiness and Peacetime Care. GAO/HEHS-00-10. Washington, 
D.C.: November 3, 1999.

Defense Health Care: Claims Processing Improvements Are Under Way but 
Further Enhancements Are Needed. GAO/HEHS-99-128. Washington, D.C.: 
August 23, 1999.

Defense Health Care: DOD Needs to Improve Its Monitoring of Claims 
Processing Activities. GAO/T-HEHS-99-78. Washington, D.C.: March 10, 
1999.

Defense Health Care: Reimbursement Rates Appropriately Set; Other 
Problems Concern Physicians. GAO/HEHS-98-80. Washington, D.C.: 
February 26, 1998.

Defense Health Care: Actions Under Way to Address Many TRICARE Contract 
Change Order Problems. GAO/HEHS-97-141. Washington, D.C.: July 14, 
1997.

FOOTNOTES

[1] Claims that were subsequently adjusted after their addition to the 
HCSR database were excluded from this spreadsheet because the processing 
time, which included adjustments, was not wholly under the control of 
the claims processor. If these claims were included, the processing 
time would have been artificially lengthened since submitters could 
take weeks before providing the information that made the adjustment 
necessary.

[2] These numbers do not include claims from TRICARE for Life (TFL), a 
separate program from TRICARE. TFL is a program for Medicare-eligible 
beneficiaries enrolled in Medicare Part B, which covers charges from 
licensed practitioners, as well as clinical laboratory and diagnostic 
services, surgical supplies and durable medical equipment, and 
ambulance services. TFL pays expenses remaining after Medicare has paid 
its share of claims.

[3] Hearings on the National Defense Authorization Act for Fiscal Year 
2003--H.R. 4546 and Oversight of Previously Authorized Programs Before 
the Subcomm. on Military Personnel of the House Comm. on Armed 
Services, 107th Cong. 297-318 and 318-334 (2002) (statements of MCS 
contractors and beneficiary representatives, respectively).

[4] Pub. L. No. 107-314, § 711(c), 116 Stat. 2458, 2588 (2002).

[5] DOD issued a request for proposals in August 2002 because the 
current health care contracts will be expiring.

[6] DOD has awarded TNEX contracts to Health Net Federal Services for 
the TRICARE North region, to Humana Military Healthcare Services for 
the TRICARE South region, and to TriWest Healthcare Alliance Corp. for 
the TRICARE West region. Palmetto Government Benefits Administrators 
will process claims for the North and South regions, and Wisconsin 
Physicians Service will process claims for the West region.

[7] According to TRICARE claims processors, providers submit about 99 
percent of the claims, with beneficiaries submitting the rest. 

[8] DEERS is a DOD database maintained by the Defense Manpower Data 
Center (DMDC), a DOD contractor. DEERS contains service-related 
eligibility and demographic data used to determine eligibility for 
military benefits, including health care, commissary, and exchange 
privileges for all service members, retirees, and their family members. 
As individuals enter the military, the services add information to 
DEERS. The services are responsible for updating information as service 
members' military status changes. Individual service personnel are 
responsible for enrolling their dependents in DEERS at local military 
installations and for notifying DEERS when an eligible dependent's 
status changes.

[9] Before processing, DOD classifies submitted claims as either 
retained, excluded, or returned. Retained claims are those held in the 
MCS contractor's possession, which contain sufficient information to 
allow processing to completion, and all claims for which missing 
information may be developed from in-house sources. Excluded claims are 
claims held at the discretion of the contractor for external 
development of information necessary to process the claim to 
completion, claims requiring development for possible third-party 
liability, or claims requiring intervention by another MCS contractor 
or DOD. Returned claims are claims with missing, incomplete, or 
discrepant information that cannot be resolved using all in-house 
methods; are not held by the contractor as excluded claims; and are 
subsequently returned to the sender.

[10] Pub. L. No. 104-191, sec. 262, § 1175(a), 110 Stat. 1936, 2027 
(codified at 42 U.S.C. § 1320d-2(a) (2000)).

[11] H.R. Rep. No. 104-496, pt. 1, at 174 (1996).

[12] 65 Fed. Reg. 50,312, 50,314 (Aug. 17, 2000).

[13] Administrative Simplification Compliance Act, Pub. L. No. 107-105, 
§ 2 (a)(1), 115 Stat. 1004 (2001).

[14] Preauthorizations are a standard of managed health care that 
require a physician or other medical provider to certify, before a 
procedure is performed, that the procedure being considered is 
medically necessary and the proposed location for delivery of care is 
appropriate. If required preauthorizations for care are not obtained, 
the associated services rendered may not be reimbursed or 
reimbursements may be reduced when claims are processed.

[15] The Centers for Medicare & Medicaid Services (CMS) has encouraged 
providers to submit claims electronically by requiring its claims 
processing contractors to delay payment of Medicare claims submitted on 
paper. 

[16] The remaining two MCS contractors told us they decided to 
reimburse paper claims and electronic claims in the order in which they 
were processed. 

[17] HIPAA required that the Secretary of Health and Human Services 
adopt standard unique provider identifier numbers. Pub. L. No. 104-191, 
sec. 262, § 1173(b)(1), 110 Stat. 1936, 2025. The regulations to 
implement this provision were not expected until October 2003 at the 
earliest, according to CMS officials responsible for these regulations. 
Providers will be required to comply with the regulation beginning 2 
years after its effective date, which will be included in the 
regulation when it is published.

[18] For example, one claims processor estimated that TRICARE is 
frequently about 3 percent of a provider's business.

[19] For example, if a multifaceted surgery claim needed clinical 
review, the electronic routing system would send the claim segments 
needing review to a nurse with appropriate surgery expertise instead of 
the claim being initially reviewed by an individual without the 
required expertise. 

[20] In June 2003, 2 percent of this processor's claims were submitted 
via the Internet.

[21] We also found that in fiscal year 2002, 82 percent of all claims 
were processed in 15 days or less, while in fiscal year 1999, 76 
percent were processed in 15 days or less.

[22] A portion of this improvement may be due to the DOD and MCS 
contractor initiative that started late in fiscal year 1999 and 
permitted MCS contractors to return claims submitted with insufficient 
or missing information. About 2 percent of claims were returned in 
fiscal year 2002. However, according to claims processors, many of 
these claims would have been returned even before this initiative.

[23] In addition, claims processors processed 41.7 million TFL claims 
in fiscal year 2002.

[24] In 1999, DOD made 310 program changes, in 2000 it made 194, and in 
2001 it made 172.

[25] MCS contractors disseminate information on program changes through 
Web sites, monthly or quarterly newsletters, and periodic bulletins. 

[26] One claims processor told us that 25 percent of the TRICARE claims 
it processed involved other health insurance. The other processor could 
not provide these data for TRICARE claims.

[27] 10 U.S.C. § 1079(j)(1) (2000).

[28] Priority inquiries are those received from members of Congress, 
the Office of the Assistant Secretary of Defense (Health Affairs), TMA 
officials, Surgeons General, flag officers, state officials, and 
others.

[29] In contrast, the jurisdiction for processing Medicare fee-for-
service physician claims is determined by the location where the 
service is provided.

[30] Claims processors told us their statistics on returned claims 
include those claims forwarded to another MCS contractor as well as 
those returned to the submitter.

[31] The 400,000 claims include TFL claims submitted to the wrong 
contractor.

[32] According to DOD officials, this period was temporarily extended 
to 289 days when a July 2001 change in the system created many 
enrollment errors. However, DOD specifications only allow contractors 
to change enrollment data that are less than 60 days old. 

[33] Providers generally use forms that they use to submit Medicare 
claims--HCFA-1500 and UB-92. Beneficiaries submit claims on DD 2642 
forms. To obtain reimbursement for civilian care outside the United 
States, providers and beneficiaries use DD form 2520.

[34] When a claim is finalized, the adjudication process is complete--
a decision has been made about whether DOD has a liability on the claim 
and the amount that will be paid.

[35] Validity edits check for the presence of an expected value in the 
data field, such as a number in an age field. Consistency edits check 
for the accuracy of an expected data value relative to another, known 
data value, such as relating 'female' to 'hysterectomy'.

[36] The claims system accesses diagnosis-related group (DRG) and 
TRICARE maximum allowable charge (TMAC) files to determine the maximum 
amount that DOD can pay for the specific services that have been 
provided.

[37] The CDCF also maintains information on the amount to be applied to 
beneficiaries' catastrophic cap coverage for each fiscal year.

[38] About 4 percent of submitted HCSRs--including TRICARE for Life and 
Basic TRICARE claims--initially fail HCSR edits. 

[39] The Floyd D. Spence National Defense Authorization Act for Fiscal 
Year 2001 required use of the TRICARE encounter data information system 
rather than the health care service record for maintaining information 
on covered beneficiaries. Pub. L. No. 106-398, § 727(1), 114 Stat. 
1654, 1654A-188 (2000).

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