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Health > 18. DOD TRICARE Improper Payments

To achieve potential cost savings associated with billions of dollars of improper payments, the Department of Defense should implement a more comprehensive improper payment measurement methodology and develop more robust corrective action plans for the military health care program known as TRICARE.

Why This Area Is Important

Improper payments—payments that were made in an incorrect amount or should not have been made at all—contribute to excess health care costs. In fiscal year 2013, the Department of Defense (DOD) spent $21 billion for the purchased care portion of TRICARE, which provides medical care to eligible military service members, retirees, and their families through civilian providers in civilian facilities.[1] The Defense Health Agency (DHA), which administers TRICARE, estimated that improper payments made up 0.3 percent of that $21 billion—$68 million. Such a low improper payment estimate likely understates the amount of improper payments. In comparison to DHA’s low estimate, the Centers for Medicare & Medicaid Services (CMS), the agency within the Department of Health and Human Services (HHS) that administers the nation’s largest federal health care program—Medicare fee-for-service (FFS)—estimated that improper payments made up about 10.1 percent of the program’s $357 billion in payments—approximately $36 billion that same year.[2] Federal agencies annually report improper payment estimates and improper payment rates for certain programs as a requirement of the Improper Payments Information Act of 2002 (IPIA), as amended, and subsequent implementing guidance from the Office of Management and Budget (OMB).[3] The extent of agencies’ reported improper payments depends, in part, on how they test program components for errors. While OMB’s implementation guidance provides parameters for developing statistically valid estimates, it does not specifically dictate how agencies should test for improper payments. IPIA, as amended, also requires agencies to report the root causes of their improper payments and identify corrective actions to address them. The corrective actions agencies develop depend, in part, on the improper payments identified by their measurement methodology.

[1] TRICARE includes several benefit options to provide health care to military service members, retirees, and their families. Medical care under TRICARE is provided by DOD personnel in military treatment facilities, or through civilian providers in civilian facilities, which is known as TRICARE’s purchased care system. Private sector contractors—referred to as TRICARE purchased care contractors—develop and maintain the private health care provider networks that make up the purchased care system, as well as process and pay claims.

[2] Medicare is the federally financed health insurance program for persons age 65 or over, certain individuals with disabilities, and individuals with end-stage renal disease. Medicare consists of four parts: Parts A and B are known as Medicare fee-for-service; Part C is the private plan alternative to Medicare fee-for-service under which beneficiaries receive benefits through private health plans; and Part D is the outpatient prescription drug benefit. Separate error rates are reported for Part C and Part D.

[3] Pub. L. No. 107-300, 116 Stat. 2350 (2002), as amended by the Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204, 124 Stat. 2224 (2010) and the Improper Payments Elimination and Recovery Improvement Act of 2012, Pub. L. No. 112-248, 126 Stat. 2390 (2013). TRICARE and Medicare fiscal year improper payment estimates represent payments from the prior year. Fiscal year 2013 estimates were the most recently available at the time GAO did its work.

What GAO Found

As GAO reported in February 2015, DHA’s methodology for measuring improper payments in the TRICARE program in fiscal year 2013 did not capture certain improper payments and was less comprehensive than the methodology used for Medicare FFS.  Specifically, DHA’s approach to measuring TRICARE improper payments examines whether the TRICARE purchased care contractors (TPCC), which processand pay submitted claims, do so in accordance with TRICARE policies. To determine a TPCC’s claims processing performance, DHA uses another contractor—the TRICARE claims review contractor—to examine a sample of paid and denied claim records, including any documentation used by the TPCC to adjudicate the claim. For example, the claims review contractor verifies that the beneficiary and provider were eligible, the claimed services were covered TRICARE benefits, the TPCC calculated correct pricing and cost sharing, and prior authorization and medical necessity were documented when necessary. However, according to DHA and claims review contractor officials GAO spoke with, medical record documentation is only included in the improper payment claims review if the TPCC conducted a medical review to determine medical necessity as part of its original claim processing. Furthermore, in cases where a medical review was conducted, the claims review contractor does not typically re-evaluate the TPCC’s medical review decision, but only ensures that the documentation exists. DHA’s improper payment measurement methodology also does not independently validate that the medical records support the diagnosis or procedure codes submitted on the claim.

As a result, while DHA’s methodology is designed to identify improper payments resulting from TPCC claims processing compliance errors, it does not comprehensively capture errors that occur at the provider level or errors that can only be identified through an examination of underlying medical record documentation.The table below provides examples of the information verified and not verified by the TRICARE improper payment measurement methodology.

Examples of Information Verified by TRICARE Improper Payment Measurement Methodologies

Type of information reviewed

Verified by TRICARE measurement methodology

Contractor claims processing review


Beneficiary eligibility for services

Claim was properly executed (e.g., appropriate provider or beneficiary signatures on the claim)

Services indicated on claim were an appropriate program benefit

Procedure code reflects diagnosis and information on claim

Other insurance liability reflected in payment

No duplicate payments in claim history

Correct pricing and cost sharing used to calculate payment

Medical record review


Evidence of medical necessity—medical record supports that services paid were medically necessary

Verification of correct coding—medical record supports that correct procedure and diagnosis codes were used

Documentation of provider services—provider has documentation to support the services claimed

Legend: ●= Measurement methodology verifies, ○ = Measurement methodology does not verify

Source: GAO analysis of Defense Health Agency information. | GAO‑15‑404SP

DHA officials reported that TRICARE has other postpayment mechanisms in place as part of its audit programs to examine medical records and thus identify the types of improper payments that the TRICARE claims review program does not. However, the results of the other mechanisms are not reflected in the estimated improper payment rates that DHA reports.

By comparison, the methodology used by CMS to measure Medicare FFS’s improper payments does identify improper payments that can only be identified through medical record reviews because CMS conducts more comprehensive reviews that examine underlying medical records for each of a sample of Medicare claims. Nearly all of the 10.1 percent or $36 billion in Medicare FFS improper payments that CMS estimated for fiscal year 2013 were for issues that could only be identified through a medical record review. OMB’s IPIA implementation guidance allows for variation in how agencies test for improper payments. However, several other federal programs that pay for services based on claims submitted by beneficiaries or providers also conduct more comprehensive reviews that include examination of the underlying documentation for each sampled claim to determine the validity of payment as part of their efforts to estimate improper payments under IPIA. Most private health insurers also identify improper payments by conducting postpayment claims reviews, according to organizations we spoke to with knowledge of claims review practices. Many such private health insurance reviews require examination of a patient’s underlying medical record to verify appropriate payment. The HHS Office of Inspector General, which conducts Medicare program integrity activities, also acknowledges that reviewing the underlying medical records is needed to verify appropriate payment.

Consequently, because DHA does not examine underlying medical record documentation to determine if payments for claims are proper, DHA’s reported fiscal year 2013 TRICARE improper payment rate of 0.3 percent likely understates the amount of improper payments in the TRICARE program, including potential overpayments that could be recouped to provide cost savings for the federal government. In addition, TRICARE’s reported improper payment estimates are not comparable to Medicare’s estimates despite similar program features. TRICARE and Medicare are at similar risk for improper payments because both health care programs pay providers on a fee-for-service basis, the programs’ providers overlap, both programs depend on contractors to process and pay claims, and TRICARE uses some of Medicare’s coverage and payment policies. If TRICARE had an error rate similar to that of Medicare—10.1 percent—measuring TRICARE improper payments in the more comprehensive approach used by Medicare could result in roughly $2 billion in identified TRICARE improper payments.

Further, DHA may be missing opportunities to achieve cost savings by preventing future TRICARE improper payments. Without a robust measure of improper payment rates in the TRICARE program, DHA cannot effectively identify root causes and take steps to address practices that contribute to improper payments and excess spending. The root causes and related corrective actions that DHA reported in fiscal year 2013 to fulfill IPIA requirements are limited to addressing issues of contractor noncompliance with claims processing requirements. These reported root causes do not address underlying causes of improper payments that are not related to contractor compliance, such as errors made by providers who may not fully understand or comply with DHA policies. Developing a more comprehensive method for measuring TRICARE improper payments, similar to that used for Medicare, could allow DHA to potentially realize savings through recouped overpayments and prevention of further improper payments in the future.

Actions Needed

To assess and address the full extent of improper payments in the TRICARE program, GAO recommended in February 2015 that the Secretary of Defense take the following two actions:

  • Implement a more comprehensive TRICARE improper payment measurement methodology that includes medical record reviews, as done in other parts of its existing audit programs.
  •  Once a more comprehensive improper payment methodology is implemented, develop more robust corrective action plans that address underlying causes of improper payments, as determined by the medical record reviews.

GAO was not able to quantify the potential financial benefits of taking these actions because other factors may prevent direct comparison to Medicare’s improper payment findings. However, implementing a robust measure of improper payment rates in the TRICARE program could help to ensure efficient use of resources and help address practices that contribute to improper payments and excess spending.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the product in the related GAO products section. To examine the extent to which the measurements and corrective actions are comparable, GAO reviewed TRICARE and Medicare fiscal year 2013 improper payment estimates, measurement methodologies, and root causes and corrective actions, as reported in DOD’s and HHS’s agency financial reports, as well as other methodological documentation and relevant DHA and CMS guidance.[1] GAO reviewed relevant laws related to federal improper payment reporting and related OMB guidance to understand improper payment error rate requirements. GAO also interviewed relevant DHA and CMS officials and their respective contractors responsible for measuring TRICARE and Medicare improper payments.

In addition, to understand how the TRICARE measurement methodology compares to other claims-based programs, GAO interviewed representatives and reviewed documentation from four organizations with knowledge of the claims review practices of private health insurance plans; reviewed the improper payment measurement methodologies of Medicare and eight other federal claims-based payment programs,[2] as reported in their respective fiscal year 2013 agency financial reports; and examined improper payment reviews conducted by the HHS Office of Inspector General. GAO also reviewed internal control standards for the federal government and findings from prior GAO reports to examine the extent to which TRICARE and Medicare identify root causes of improper payments and develop effective corrective action plans to reduce them.

Table 13 in appendix V lists the programs GAO identified that might have opportunities for cost savings.

[1] DOD and HHS published their fiscal year 2014 TRICARE and Medicare improper payment estimates in November 2014, after GAO completed the majority of work for this review. Therefore, fiscal year 2014 improper payment reporting is outside the scope of this review. In addition, the fiscal year 2014 rates reported did not change the key findings of this review.

[2] GAO chose these eight programs because they involved federal payments, either directly by the agency or through a claims administrator, based on claims for services rendered.

Agency Comments & GAO Contact

In commenting on the February 2015 report on which this analysis is based, DOD concurred with our recommendations and outlined the steps the department will take prior to implementation, including conducting discussions within the department; developing implementation plans; and hiring or contracting for the needed workforce to begin implementing the recommendations. DOD noted that taking these steps would take time. Given the potentially high cost of improper payments, GAO believes DOD should move expeditiously.

GAO provided a draft of this report section to DOD for review and comment. DOD did not have comments on this issue.

For additional information about this area, contact Vijay A. D’Souza at (202) 512-7114 or

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