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Report to the Committees on Armed Services, U.S. Senate and House of Representatives: United States Government Accountability Office: GAO: July 2005: Defense Health Care: Implementation Issues for New TRICARE Contracts and Regional Structure: GAO-05-773: GAO Highlights: Highlights of GAO-05-773, a report to Committees on Armed Services, U.S. Senate and House of Representatives: Why GAO Did This Study: The Department of Defense (DOD) provides health care through TRICARE-- a regionally structured program that uses civilian contractors to maintain provider networks to complement health care provided at military treatment facilities (MTF). In 2004, DOD implemented extensive changes to its TRICARE contracts and regional structure. A committee report accompanying the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 directed GAO to provide information on implementation issues for (1) the new TRICARE contracts and (2) the new regional structure. This report also provides information on the new management tools used to assess (3) contractors' performance and (4) program performance at the MTF and regional levels. What GAO Found: During implementation of the new health care delivery contracts, issues arose that affected the administration of the TRICARE program. These issues increased program costs and impacted operations but had a minimal impact on the delivery of health care to beneficiaries. In particular, DOD's automated referral and authorization system was not available for contractors and MTFs at the start of health care delivery, resulting in the need for labor-intensive manual processes. DOD could not provide comprehensive costs associated with the system's development and subsequent nonavailability, but contractors' initial estimates for implementing manual processes in response to the system's nonavailability exceed $250 million over the 5-year contract period. DOD continues to incur costs to identify and develop solutions for managing referrals and authorizations and could not yet provide a time frame for when an automated system would be implemented. Implementation of the new regional structure, called the governance structure, highlighted ambiguities about the roles and responsibilities of the newly established TRICARE regional offices (TRO) with respect to both contract oversight and coordination with the military services' MTFs. DOD offices, which traditionally oversee the contracts, and the TROs, which were assigned contract oversight responsibilities under the plan for the new governance structure, have had difficulties coordinating their responsibilities. In addition, while the governance plan states that TRO directors are to work with MTFs on issues such as maximizing the use of the direct care system, it does not provide the TROs with a protocol for these interactions. TRO directors do not have authority over MTFs and must rely on a collaborative approach to obtain cooperation. In some instances, military service officials have expressed concern that TROs have overstepped their authority by directly providing MTFs with guidance. DOD has two new management tools for assessing the performance of contractors--performance guarantees and award fees. While performance guarantees serve as the basis for financial penalties, DOD's process for assessing penalties is still evolving. Nonetheless, for the first quarter of the contract year, DOD assessed all contractors with performance guarantee penalties, including penalties related to telephone wait times and the timely submission of referral reports for specialty care. In addition to penalties, DOD uses award fees to provide contractors with financial bonuses based on customer service. All contractors received an award fee for their performance during the first quarter of their contract year. Although business plans were intended to be the management tools used to assess program performance at the MTF and regional levels, the fiscal year 2005 business plans for MTFs and TROs could not be used as intended for program oversight. Lacking clear guidance, each military service used its own approach to develop MTF business plans. The resulting inconsistencies in content and form impeded development of regional business plans, which are intended to incorporate the regions' MTF business plans. The three military services have collaborated to develop a standard MTF business planning approach--an effort that should improve both the MTF and regional plans for fiscal year 2006. What GAO Recommends: GAO is making recommendations to DOD that are aimed at determining the costs associated with its automated system for referrals and authorizations to decide what future investments are warranted as well as clarifying responsibilities for contract oversight and establishing protocols for regional offices to collaborate with MTFs to facilitate regional oversight. DOD concurred with each of GAO's recommendations and stated that it was actively working to manage these issues. www.gao.gov/cgi-bin/getrpt?GAO-05-773. To view the full product, including the scope and methodology, click on the link above. For more information, contact Marcia Crosse at (202) 512-7119 or crossem@gao.gov. [End of section] Contents: Letter: Results in Brief: Conclusions: Recommendations for Executive Action: Agency Comments and Our Evaluation: Appendix I: Briefing on the Implementation of New TRICARE Contracts and Governance Structure: Appendix II: Comments from the Department of Defense and GAO's Response: Abbreviations: DEERS: Defense Enrollment Eligibility Reporting System: DOD: Department of Defense: EWRAS: Enterprise Wide Referral and Authorization System: MCSC: managed care support contractor: MTF: military treatment facility: RFP: request for proposal: TED: TRICARE Encounter Data: TMA: TRICARE Management Activity: TOL: TRICARE On Line: TRO: TRICARE regional office: United States Government Accountability Office: Washington, DC 20548: July 27, 2005: The Honorable John Warner: Chairman: The Honorable Carl Levin: Ranking Minority Member: Committee on Armed Services: United States Senate: The Honorable Duncan Hunter: Chairman: The Honorable Ike Skelton: Ranking Minority Member: Committee on Armed Services: House of Representatives: The Department of Defense (DOD) provides health care to over 9 million beneficiaries, including active duty personnel, retirees, and their dependents, through its TRICARE program, which is expected to cost $36 billion in 2005. TRICARE beneficiaries can obtain health care through DOD's direct care system of military hospitals and clinics, commonly referred to as military treatment facilities (MTF), and through DOD's purchased care system of civilian providers. DOD uses managed care support contractors (MCSC) to develop networks of providers to complement care available in MTFs and to perform other customer service functions, such as claims processing. DOD's TRICARE Management Activity (TMA), under the Assistant Secretary of Defense for Health Affairs, is responsible for procuring, administering, and overseeing the health care delivery contracts for purchased care. Beginning in 1995, TMA implemented the TRICARE purchased care system through 7 health care delivery contracts that covered 11 geographic health care regions nationwide. We previously reported that the contracts' size, complexity, and prescriptive requirements limited innovation and competition among contractors.[Footnote 1] In August 2002, TMA announced extensive changes to the next generation of TRICARE contracts that included consolidating the number of health care regions from 11 to 3 and correspondingly reducing the number of health care delivery contracts to 3. Additionally, some of the health care functions that had been included in the previous TRICARE contracts, such as retail pharmacy services and MTF appointments, were removed from the new health care delivery contracts. These functions were either separately awarded as national contracts or were given to the military services to manage. In designing the new contracts, TMA used a performance-based contracting approach that focuses on outcomes and gives the MCSCs latitude on how to achieve them--unlike the previous contracts that more specifically prescribed how MCSCs were to meet contract standards. To oversee MCSCs' performance under the new contracting approach, TMA developed management tools to ensure that specific program outcomes are achieved and to monitor MTF commanders' and beneficiaries' satisfaction with customer service. TMA and the military services also made substantial changes to the management and oversight of TRICARE's purchased and direct care systems through the joint development of a governance plan. This plan established a new, regional governance structure, including the creation of TRICARE regional offices (TRO) to manage each of the three TRICARE regions (North, South, and West).[Footnote 2] The TROs are each led by a director, who reports to the Deputy Director of TMA. According to the governance plan, TRO directors are considered the health plan managers for the regions and are responsible for managing the new contracts, including ensuring network quality and adequacy, monitoring customer satisfaction outcomes, and coordinating appointment and referral management policies. TRO directors are also responsible for supporting MTF commanders in their efforts to maximize the use of MTFs and for providing other assistance as needed. Through the governance plan, TMA and the military services established annual business plans as the primary management tools for overseeing the delivery of health care at the MTF and regional levels. MTFs are responsible for developing business plans that establish their capabilities and capacity and that provide financial and workload information. After each military service approves the MTF business plans, MTF commanders submit them to the TROs for inclusion in a single, regional business plan that also contains information about health care delivery in areas without MTFs. To oversee the delivery of health care and achieve optimal use of the direct care system, senior officials can use business plans to make informed decisions on what health care should be provided through the MTFs versus the purchased care system of civilian providers. The implementation of the new contracts and governance structure involved numerous transition activities that required careful planning and execution to ensure that the delivery of health care to beneficiaries was not disrupted. The Senate Committee on Armed Services, in a report accompanying the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, directed GAO to monitor the transition to the new contracts and governance structure supporting the TRICARE program and to provide an assessment of initial transition activities.[Footnote 3] In response, we examined: 1. issues that arose during implementation of the new TRICARE contracts and how they are being addressed, 2. issues that arose during implementation of the new TRICARE governance structure and how they are being addressed, 3. management tools established to assess MCSCs' performance and how these tools are being used, and: 4. management tools established to assess TRICARE program performance at the MTF and regional levels and how these tools are being used. To conduct our evaluation, we interviewed officials at the offices responsible for administering the TRICARE program, including TMA; the Offices of the Surgeons General for the Army, Navy, and Air Force; TROs and MCSCs for the North, South, and West regions; and beneficiary group representatives. We also reviewed TMA directives, organizational charts, guidance, manuals, and contract requirements. We evaluated the governance plan and organizational structure and reviewed the timelines and plans for the transition to the new contracts and governance structure. We analyzed business planning documents for each of the TROs and for selected MTFs for fiscal year 2005. We also reviewed the reports and tools that are being used to monitor MCSC performance, including customer satisfaction surveys that are administered to beneficiaries and to MTF commanders. We assessed the reliability of the data used in this report and determined that they were sufficiently reliable for our purpose. To assess the reliability of the data, we (1) confirmed with TMA and MCSCs that the data they provided included the elements that we requested and that these data elements were consistent with provided documentation and (2) conducted detailed interviews with TMA and MCSC officials to identify any limitations in the data. We conducted our work from December 2004 through July 2005 in accordance with generally accepted government auditing standards. On May 2, 2005, we provided your staff with a briefing on the preliminary results of this review. The purpose of this letter is to provide the published briefing slides to you, which appear as appendix I. The information in these slides has been updated to provide more current data. Results in Brief: A range of issues arose during implementation of the new health care delivery contracts that affected the administration of the TRICARE program. These issues increased program costs and impacted operations but had a minimal impact on the delivery of health care to beneficiaries. For example, the transition to new contracts prompted a higher-than-expected volume of beneficiary calls, requiring MCSCs to use additional resources to reduce telephone hold times and minimize beneficiary inconvenience. In addition, other problems, including difficulties with computer systems, strained program operations. The most significant and costly issue was the nonavailability of the Enterprise Wide Referral and Authorization System (EWRAS) that TMA and the military services had been developing since 2001. EWRAS was expected to provide automated referrals and authorizations for specialty care, and both MTFs and MCSCs had developed business processes based on the assumption that EWRAS would be available at the start of health care delivery. In its absence, both entities expeditiously developed and implemented labor-intensive manual processes. MCSCs' initial estimates of the costs involved with addressing the absence of EWRAS exceed $250 million over the 5-year contract period, but they have not yet negotiated this cost with TMA for reimbursement. MTFs had to absorb the costs associated with addressing the additional workload resulting from the need to manually process referrals and authorizations, and the military services could not provide the costs of these efforts. TMA officials also could not provide comprehensive costs incurred to develop EWRAS but estimated $9 million in contract costs--an estimate that does not include the staff resources expended to develop specifications for the system. Further, additional resources are being expended as TMA has established multiple teams to develop solutions for managing referrals and authorizations. Depending on what these teams recommend, TMA officials will decide whether EWRAS will be used or whether another automated system will need to be developed even though TMA lacks critical cost information needed to facilitate decision making on the optimal approach for managing referrals and authorizations. Additionally, although TMA continues to incur costs related to identifying and developing solutions, TMA officials could not provide an estimate of when an automated system would be available. Issues arose during the implementation of the new TRICARE regional governance structure that highlighted ambiguities about the roles and responsibilities of the TROs with respect to both contract oversight and collaboration with the military services' MTFs. Although the governance plan gives TRO directors responsibility for overseeing contract functions, it does not specifically delineate how this responsibility is to be coordinated with the TMA offices traditionally responsible for contract oversight. As a result, there have been coordination difficulties between the TROs and these TMA offices, resulting in conflicting communications on issues such as financial penalties and policy related to authorizations for care to an MCSC. In light of these difficulties, TMA officials have acknowledged the need to reassess and clarify the responsibilities and coordination requirements for contract oversight functions. In addition, while the governance plan states that TRO directors are to work with MTFs on issues such as maximizing the use of the direct care system, it does not provide the TROs with a protocol for these interactions. Because MTFs belong to the military services, TRO directors do not have authority over them and must rely on a collaborative approach to obtain cooperation. In the absence of clear protocols, military service officials have expressed concern about TROs' efforts to exert influence on MTFs stating that TROs have overstepped their authority in some instances by directly providing guidance to MTFs on issues such as referral management procedures and the movement of staff among MTFs. TMA has two new management tools for assessing the performance of the MCSCs--performance guarantees and award fees--which are used to financially penalize and reward MCSCs. Performance guarantees establish a minimum baseline for performance against 10 specific standards and serve as the basis for financial penalties. Although TMA has assessed performance guarantee penalties for each of the MCSCs, the process for assessing these penalties is still evolving. Because the new health care delivery contracts are performance based and focus on outcomes instead of processes, each MCSC measures and reports performance data differently. As of April 2005, TMA was still working with two MCSCs to understand their reported data and was still working to complete the validation of MCSCs' systems that generate reported performance data. Furthermore, TMA and MCSC officials acknowledge that administering the performance guarantees is difficult because not all of these standards reflect common industry practices and, therefore, they have no precedent on how to measure them. Separately, TMA uses award fees to provide MCSCs with financial bonuses based on customer satisfaction surveys administered to beneficiaries and MTF commanders as well as the TRO directors' firsthand knowledge of MCSCs' performance. All MCSCs received an award fee for their performance during the first quarter of their contract year. Business plans--the management tools established for overseeing TRICARE performance at the MTF and regional levels--could not be used as intended during fiscal year 2005. TMA provided the military services with only minimal guidance on developing MTF business plans and, consequently, each of the services developed its own guidance, resulting in variations among the fiscal year 2005 MTF business plans in both content and format. These inconsistencies subsequently impeded the development of the regional business plans, which were intended to incorporate the regions' MTF business plans. As a result, regional business plans for fiscal year 2005 focused primarily on regional operations and health care delivery in areas without MTFs and could not be used to ensure optimal use of the direct care system. To improve upon the business planning process for fiscal year 2006, the three military services collaborated to develop an automated tool to standardize the content and format of MTF business plans and to ensure that the plans are aligned with the military health system's overarching strategic plan. The automated tool also includes metrics that can be used to assess direct care system performance. TMA officials expect that the automated tool for MTF business plans will subsequently improve the quality of information to be incorporated in the regional plans, allowing regional plans to be used as intended to monitor both the direct and purchased care systems. Conclusions: The overall implementation of the new contracts and governance structure was an enormous undertaking for all stakeholders in the TRICARE system that proceeded with few issues affecting beneficiaries due to the close collaboration of TMA, MCSCs, and the military services. Most of the contract implementation issues were related to program administration and affected costs and operations with little impact on health care delivery. The most significant implementation issue--the nonavailability of EWRAS--required extensive and costly process changes under short time frames. However, TMA has not clearly identified all of the costs associated with EWRAS development and nonavailability although MCSCs' have estimated costs of over $250 million for their efforts in addressing this problem over the 5-year contract period. Additionally, TMA continues to incur costs related to developing solutions for managing referrals and authorizations--a process that may take years to complete. Without a complete understanding of past and ongoing costs associated with EWRAS and the development of solutions, TMA will have difficulty determining what further investments are warranted in developing the optimal approach for managing referrals and authorizations. The implementation of the new regional governance structure has not been flawless, largely because the role of the newly created TROs was not always clearly defined in the governance plan. Confusion about the TROs' role in contract oversight has created coordination problems with the TMA offices that have traditionally conducted contract oversight functions, resulting in conflicting directions on certain issues. Further, despite the TROs' lack of authority over the direct care system, the governance plan did not provide clear protocols for how TROs are expected to collaborate with the military services' MTFs in order to obtain their cooperation and maximize regional use of the direct care system. In some instances, military service officials have expressed concerns about the TROs overstepping their authority in working with MTFs, potentially straining the collaborative relationships. Without clearly defined roles and responsibilities for overseeing the contracts and collaborating with MTFs, TRO's oversight of regional health care delivery as envisioned by the governance plan could be compromised. Finally, the management tools used in assessing program performance continue to evolve. TMA is working with the MCSCs to hone its approach for measuring and administering performance guarantees, an effort that should help improve contract oversight. Furthermore, the new automated business planning tool appears promising and could result in improvements in the consistency and content of the fiscal year 2006 MTF business plans, subsequently improving the quality of the regional plans. If effective, TROs and MTF commanders should be able to use the business plans as intended to assess program performance at the MTF and regional levels and to ensure optimal use of the direct care system. Recommendations for Executive Action: As DOD considers what further investments are warranted for managing referrals and authorizations, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to determine comprehensive costs for the development and nonavailability of EWRAS as well as the costs being incurred to develop a solution. To facilitate the TROs' oversight of regional health care delivery, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to take the following two actions: 5. clearly define the TROs' contract oversight roles and responsibilities as they relate to other TMA offices and: 6. establish protocols for how TROs are to collaborate with the military services' MTFs. Agency Comments and Our Evaluation: In commenting on a draft of this report, DOD concurred with each of our recommendations and said that it was actively working to manage the issues we noted. DOD's written response is reprinted in appendix II. DOD also provided several technical comments that we incorporated where appropriate. DOD specifically stated that as the search for an automated solution to referrals and authorizations continues, the process of cost development and containment is ongoing. Once all costs associated with the nonavailability of EWRAS have been fully examined, DOD plans to negotiate a final cost for manual referral processing with the MCSCs. In addition, DOD stated that as it develops and implements an automated solution for processing referrals and authorizations, program oversight will be maintained to ensure that an automated solution satisfies the needs of all end users. To more clearly define contract oversight responsibilities, DOD said that it is in the process of reexamining business functions for the TROs and other TMA offices. DOD acknowledged that TMA's existing business practices and processes were established before the TROs were created and that business functions need to be reexamined in light of the new regional structure. The Assistant Secretary of Defense for Health Affairs has directed TMA to evaluate certain business functions and to develop written guidance to clearly define how the related business practices are performed. In conducting this evaluation, it will be important for DOD to specifically examine the administration of MCSCs' performance guarantees and the associated financial penalties-- a critical aspect of contract oversight where coordination has been problematic. Further, to ensure continuous communication and coordination of critical issues affecting all contracts, DOD has recently established a Program Oversight Council, whose members include the TRO Directors, the Deputy Chief for Acquisitions, the Deputy Chief for Resource Management and Procurement, and the Chief of Health Plan Operations. In addition, DOD stated that it intends to establish protocols and specific management mechanisms for the TROs to coordinate with MTFs. In particular, the Assistant Secretary of Defense for Health Affairs has directed the development of agreed-upon protocols and mechanisms for the TROs to coordinate regional business plans with MTFs in their regions. While we agree that the business planning process is the primary method of collaboration between TROs and MTFs, it is not the only area for which protocols are needed. Because TROs serve as the health plan managers for the regions, they will sometimes need to collaborate with MTFs on issues that are not directly related to business plans, such as the communication of referral management procedures. We believe that established protocols could facilitate such communication and alleviate the military services' concerns about how TROs are interacting with the MTFs. Despite concurring with our recommendations, DOD stated that the report did not emphasize what it viewed as the positive aspects of the implementation--primarily that DOD achieved its paramount goal of assuring a minimal impact on beneficiaries. However, the objectives of our review were to identify the issues that were encountered during the implementation of the new contracts and governance structure, and our report appropriately focuses on these issues. Nonetheless, our overarching assessment of DOD's implementation activities clearly states that the impact on beneficiaries was minimal and attributes this to the close collaboration of TMA, MCSCs, and the military services. We are sending copies of this report to the Secretary of Defense and other interested parties. We will also make copies available upon request. In addition, the report will be available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7119. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. In addition to the contacts named above, Bonnie Anderson, Assistant Director, Lois Shoemaker, Rob Suls, and Cathy Hamann made key contributions to this report. Signed by: Marcia Crosse: Director, Health Care: [End of section] Appendix I: Briefing on the Implementation of New TRICARE Contracts and Governance Structure: [See PDF for images] [End of slide presentation] [End of section] Appendix II: Comments from the Department of Defense and GAO's Response: THE ASSISTANT SECRETARY OF DEFENSE: HEALTH AFFAIRS: WASHINGTON, D.C. 20301-1200: JUN 2 9 2005: Ms. Marcia Crosse: Director, Health Care: U.S. Government Accountability Office: 441 G Street, N.W. Washington, DC 20548: Dear Ms. Crosse: This is the Department of Defense (DoD) response to the GAO draft report, 'DEFENSE HEALTH CARE: Implementation Issues for New TRICARE Contracts and Regional Structure,' dated June 13, 2005, (GAO Code 290419/GAO-05-773). Thank you for the opportunity to review the draft report. We do not concur with the draft report as written. The report is a very one-sided assessment of a very complex and multifaceted transition/transformation of DoD's purchased health care system. The report does not offer comments on the many positive aspects of this endeavor. In your notice of review for this audit, it was stated that the audit would focus, in part, on what impacts the new TRICARE contracts are having on beneficiaries and civilian providers. The letter portion of your report addressed to the Chairmen and Ranking Members of the Committees on Armed Services for the Senate and House of Representatives states that, "issues increased program costs and impacted operations but had a minimal impact on the delivery of health care to beneficiaries." Our paramount goal during the transition was to assure a minimal impact on beneficiaries. We believe there is clear and ample evidence to show that the transition had an overall positive impact, such as the seamless transfer of management responsibility for provider networks in Region North that allowed many beneficiaries to enjoy uninterrupted continuity of care. While no program is implemented 100% without flaw, given the magnitude of this effort, the complexity of the actions, and the scope the endeavor called for, we believe DoD has achieved, and continues to achieve, its goals for a successful transition. This should be reflected in the report. The report makes three recommendations for action by the TRICARE Management Activity. We concur with comments on these recommendations and are actively working to manage the issues noted in the recommendations. Our comments are included in the enclosure along with responses to the recommendations. We have also included specific technical corrections for your consideration to help strengthen the report. My points of contact are Mr. Ron Richards (functional) at (703) 681- 1133 and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-3492. Sincerely, Signed by: William Winkenwerder, Jr., MD: Enclosure: As stated: GAO DRAFT REPORT - DATED June 13, 2005 GAO CODE 2904191GAO-05-773: "DEFENSE HEALTH CARE: Implementation Issues for New TRICARE Contracts and Regional Structure" DEPARTMENT OF DEFENSE COMMENTS: The draft report provides a review of the Department's implementation of the new TRICARE contracts and regional structure recently implemented for the Military Health System (MHS). Overall Comments: ENTERPRISE-WIDE REFERRAL AND AUTHORIZATION SYSTEM (EWRAS): 1. Executive Summary Highlights, paragraph 1, lines 7-10: with regard to EWRAS costs, the report reads: "DOD could not provide comprehensive costs associated with the system's development, but contractors' initial estimates for implementing manual processes in response to system nonavailability exceed $250 million over the five year contract period." It is recommended that the report should read: "DOD estimates that $9M has been spent on concept exploration, initial business process and requirement definition and the development of EWRAS. DOD is in the process of negotiating the costs for the current manual referral and authorization process. Contractors' initial estimates for implementing manual processes in response to system nonavailability exceed $250 million over the five year contract period." Rationale: The replacement wording and revised sentence structure more accurately depicts the history and status of the enterprise wide referral and authorization and progress to date. 2. Executive Summary Highlights, paragraph 1, lines 10-13: with regard to DoD cost estimates, the report reads: "DOD continues to incur costs to identify and develop solutions for managing referrals and authorizations and could not yet provide a timeframe for when an automated system would be implemented." It is recommended that the report should read: "The Enterprise Wide Referral and Authorization (EWRA) IPT has clearly delineated the enterprise wide referral and authorization business process. Functional requirements are being defined and technical solutions analyzed. Development of the referral and authorization automated technical solution is expected to be complete within 24 months." Rationale: The DODI 5000.2 defines the incremental steps required for development and implementation of Information Technology related acquisitions. Clear definition of business processes and functional requirements must be completed prior to development of a technical solution and timelinc for implementation. 3. Page 5, paragraph l, lines 2-23: with regard to the EWRAS development history, the report reads: "EWRAS was expected to provide automated referrals ...... TMA officials could not provide an estimate of when an automated system would be available" It is recommended that the report should read: "EWRAS was expected to provide automated referrals and authorizations for specialty care, however both MTFs and MCSCs had developed unique processes which could not be uniformly automated. In the absence of EWRAS, both entities expeditiously developed and implemented manual processes. TMA is currently negotiating the cost for the manual referral and authorization process with the MCSCs. TMA officials estimate that $9M has been spent on concept exploration, initial business process and requirement definition, and development of EWRAS to date. A EWRA IPT has clearly delineated the enterprise wide referral and authorization business process. Development of the referral and authorization automated technical solution is expected to be complete within 24 months." Rationale: The replacement wording more accurately depicts the history and status of the enterprise wide referral and authorization and progress to date. 4. Pages 7-8, Conclusions, paragraph 1, lines 6-16: with regard to EWRAS implementation, the report reads: "The most significant implementation issue ... warranted in developing the optimal approach for managing referrals and authorizations." It is recommended that the report should read: "The most significant implementation issue was the lack of standardization of the referral and authorization process across the MHS which prevented the fielding of EWRAS. TMA has estimated the costs associated with concept exploration, initial business process and requirement definition, and development of EWRAS to be $9M. The cost of the manual process is not yet available as it is currently being negotiated between TMA and the MCSCs. The EWRA IPT has clearly delineated the enterprise wide referral and authorization business process. The Senior Military Medical Advisory Council (SMMAC) has indicated that the fielding of the automated technical referral and authorization solution is a top priority. High level program oversight by the SMMAC will ensure that the automated solution is developed based on the end users needs as defined by the enterprise wide referral and authorization business process." Rationale: The replacement wording more accurately depicts the history and status of the enterprise wide referral and authorization and progress to date. GAO DRAFT REPORT - DATED June 13, 2005 GAO CODE 290419/GAO-05-773: "DEFENSE HEALTH CARE: Implementation Issues for New TRICARE Contracts and Regional Structure" DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS: RECOMMENDATION 1: The GAO recommended that the Secretary of Defense direct the Assistant Secretary of Defense (Health Affairs) to determine comprehensive costs for the development and nonavailability of the Enterprise Wide Referral and Authorization System as well as costs being incurred to develop a solution." (Pages 8 and 9/GAO Draft Report): DOD RESPONSE: Concur. The process of cost development and containment is ongoing. The Enterprise Wide Referral and Authorization System (EWRAS) is designed to support the business processes involved in managing the referral and authorization process for specialty care. The goal is to field an automated information system, EWRAS, whose measure of effectiveness is to effectively support the Enterprise Wide Referral and Authorization Processes (EWRAP) as defined by the users. The end result is EWRAP optimization. The Enterprise Wide Referral and Authorization (EWRA) Integrated Project Team (IPT) has clearly delineated EWRAP. The ERWA IPT, chaired by a Flag Officer, is defining the functional requirements and analyzing the technical solutions. Development of the referral and authorization automated technical solution, EWWAS, is expected to be complete within 24 months." As this process continues to unfold, the development and implementation costs of the EWRAP and EWRAS remain an important consideration. TMA issued a contract change order to implement contingency plans in the absence of an automated EWRAS solution. Although the Managed Care Support Contractors (MCSCs) estimate the cost of the manual process at $250M over five years, this figure is only their rough order of magnitude (ROM). Historically, once all costs have been fully examined, TMA has negotiated the cost of unilateral change orders at substantially less than the contractors' ROM estimates, and is confident of achieving the same result in this instance. The $9M cost to date to develop the EWRAS capability was not a wasted investment for the Government. The capability developed was an electronic solution to referrals and authorizations, but lacked adequately approved business processes to accomplish the function. The EWRA IPT developed, refined, and achieved approval of the business process requirements for performing referrals and authorizations by the MTFs and the MCSCs, and is now performing a map-and-gap analysis of the relationship between the electronic EWRAS platform and the functional requirement to determine what, if any, adjustments are required to field the EWRAS system. As DOD implements the automated solution, program oversight will be maintained to ensure that the automated solution is developed based on the end users needs. The DODI 5000.2 defines the incremental steps required for development and implementation of Information Technology related acquisitions, and is the model being employed to develop, track and control program costs. RECOMMENDATION 2: The GAO recommended that the "Secretary of Defense direct the Assistant Secretary of Defense (Health Affairs) to clearly define the TRICARE regional offices' contract oversight roles and responsibilities as they relate to other TRICARE Management Activity offices." (Page 9/GAO Draft Report): DOD RESPONSE: Concur. In January 2005, as part of the continuing TRICARE Management Activity (TMA) transformation process, the ASD(HA) appointed an SES-level committee to look at what appropriate additional steps were required to assure that the organization had the optimal balance to effectively support the TRICARE governance structure. In April, the committee provided several recommendations designed to support the appropriate balance to enhance TMA's effective management of both the global and regional aspects of the TRICARE Program. The committee noted that the major business practices and processes had all been established, either in writing or practice, before the TRICARE Regional Office (TRO) structure was put in place and have remained unchanged. Because new guidance had not been issued to the staff, confusion occurred in what is expected of them and how they were to perform various functions. The committee recommended that TMA re- examine its business functions and clearly define how it wanted its business practices to be performed. The Assistant Secretary of Defense (Health Affairs) has embraced this recommendation and in May 2005 he directed a re-look of the following TMA business functions: policy development and coordination; issue development and coordination; requirements management; change order management; pre-negotiation/award review and approval; coordination among the TRICARE Regional Offices; financial management [contract financial execution visibility and purchase care requirements determination]; program integrity; program management decision process; and marketing and education. The ASD(HA) directed that the review process of these business functions and the development of written guidance be completed in 60 days to clearly define how business practices are performed. This will provide a clear picture to the staff of what is expected of them and how they are to perform various functions. In addition, a Program Oversight Council whose members include the TRO Directors, the Deputy Chiefs for Acquisitions and Resource Management and Procurement, and the Chief, Health Plan Operations (Chair), has been formed and meets weekly. This forum links the field (TROs) with the operations, policy and resource functions of TMA, and ensures continuous communication and coordination of critical issues affecting all contracts. It also allows for prioritization of issues to be worked and vetted through the TMA leadership. RECOMMENDATION 3: The GAO recommended that the "Secretary of Defense direct the Assistant Secretary of Defense (Health Affairs) to establish protocols for how TRICARE regional offices are to collaborate with the military services' military treatment facilities." (Page 9/GAO Draft Report): DOD RESPONSE: Concur. The Regional Directors are the health plan managers for their respective regions, and are charged with developing a regional business plan that optimizes the capabilities of the direct care Military Treatment Facilities (MTFs). In the first year of the new governance structure, Fiscal Year 2005, the business planning process was in its initial stages. The Assistant Secretary of Defense (Health Affairs) has issued Military Health System Business Planning Guidance to the Service Surgeons General and the TRICARE Regional Directors for the Fiscal Year 2006-2008 budget cycle. The guidance: * Directs use of the Tri-Service Business Planning Tool for Military Treatment Facility, Multi-Service Market and TRICARE Regional Office business plans; * Establishes 8 critical initiatives as the focus of the plans; * Assigns responsibility to the TRICARE Regional Offices for optimizing the direct care and purchased care resources and for determining the purchased care requirements of the "white spaces" (the areas in a region outside the Prime Service Area of any Military Treatment Facility); and: * Includes a timeline to make the Fiscal Year 2006 business plan the basis for the Fiscal Year 2008-FY 2013 Defense Health Program Budget Estimate Submission. To assure that the business planning process is optimized, the Assistant Secretary of Defense (Health Affairs) has directed that the Military Health System Strategic Management process be used as the vehicle to establish agreed upon protocols and specific management and coordination mechanisms for the TRICARE Regional Offices to coordinate effective regional business plans with the Military Treatment Facilities and multi-service market managers in their regions. The following are GAO's comments on the DOD June 29, 2005, letter. GAO's Comments: 7. The TRICARE Management Activity (TMA) estimated that $9 million in contract costs had been spent for the development of EWRAS through June 2004. In addition, as a result of EWRAS nonavailability, the managed care support contractors (MCSC) estimated $250 million for implementing a manual referral and authorization process over five years. However, TMA did not provide us with complete data related to EWRAS costs. TMA could only verify that $6 million had been spent on a contract to develop the system and estimated that an additional $3 million had been spent on EWRAS development through another information system contract. Therefore, TMA's estimate of EWRAS expenditures are associated only with system development contracts and do not include the separate costs incurred by TMA or the military services for staffing resources expended in conceptualizing the system and developing system specifications. 8. TMA has established multiple teams to develop solutions for managing referrals and authorizations. In July 2005, we confirmed with TMA officials that the most recent team has established a business process that will serve as the framework for the automated management of referrals and authorization. DOD's response acknowledges that efforts to develop an automated system are ongoing as functional requirements for a system are being defined and technical solutions analyzed. Therefore, as we reported, TMA continues to incur costs to identify and develop solutions for managing referrals and authorizations. Additionally, DOD's response asserts that an automated system is expected to be complete within 24 months. However, in further discussions, TMA officials told us that implementation would not be initiated until the concept of operations is approved and funding is provided--activities that had not occurred and would likely stretch the timeline past 24 months. Additionally, in its rationale, DOD confirms that until definitions for both business processes and functional requirements are completed, a technical solution and implementation timeline cannot be developed. 9. We believe that our report paragraph accurately depicts the history and status of the referral and authorization process. Further, as previously stated, TMA officials told us that implementation would not be initiated until the concept of operations is approved and funding is provided--activities that had not occurred and would likely stretch the timeline past 24 months. In addition, DOD confirmed that a technical solution and implementation timeline cannot be developed until definitions for both business processes and functional requirements are completed. 10. We agree that the lack of standardization of the referral and authorization process prohibited TMA from deploying its EWRAS automated system. This was a critical issue that TMA should have recognized and addressed during EWRAS development. Because this was not done, EWRAS could not be deployed, and, as we concluded, EWRAS nonavailability became the most significant implementation issue. [End of section] FOOTNOTES [1] GAO, Defense Health Care: Lessons Learned From TRICARE Contracts and Implications or the Future, GAO-01-742T (Washington, D.C.: May 17, 2001). [2] The governance plan also designated selected locations with more than one MTF as Multiple Service Markets. We did not include these markets in the scope of our review. [3] S. Rep. No. 108-260, at 351 (2004). GAO's Mission: The Government Accountability Office, the 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. 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