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Testimony on Medicare Department of Defense and Veterans Affairs Subvention by Robert A. Berenson, M.D.
Director, Center for Health Plans & Providers
Health Care Financing Administration
U.S. Department of Health and Human Services

Good morning, Chairman Roth, Senator Moynihan and members of the Committee, thank you for inviting us to discuss our demonstration for Medicare subvention involving Medicare-eligible military retirees and their families and our proposed demonstration for Medicare subvention involving our nation's veterans. I also want to thank the General Accounting Office for its valuable evaluation of the Department of Defense demonstration project, which raises issues that we are working with the DoD to address and provides us information to better plan for the Veterans Affairs subvention demonstration.

In recent weeks we have been reminded once again of the contributions America's military retirees and veterans have made to our country. We are committed to working with the DoD and VA to see if there is a way to improve their access to care while protecting the Medicare Trust Funds. The Clinton Administration strongly supports these demonstrations, which will provide needed information regarding the effects of subvention and its potential to benefit all parties involved. I want to update you on the status of these demonstrations and to explain the need to limit the Veterans Affairs demonstration project to coordinated care.

The term "subvention"refers to Medicare paying for care provided at military, veterans or other federal facilities to Medicare beneficiaries. Medicare is precluded by statute from doing this. The Balanced Budget Act of 1997 authorized a 3-year, demonstration for military retirees and an implementation plan for a similar veterans demonstration. Enrollment in the DoD demonstration began in August 1998, and we expect to have a signed Memorandum of Agreement with the Department of Veterans Affairs on the VA demonstration in about a week. These demonstrations provide the opportunity to assess how a coordinated approach to subvention might improve efficiency, access, and quality of care for Medicare-eligible military retirees and veterans in a select number of sites. In implementing the DoD demonstration and drafting the memorandum of agreement with the VA, we focused on two imperatives: protecting beneficiaries and protecting the Medicare Trust Funds.

DOD SUBVENTION DEMONSTRATION

The DoD demonstration creates a DoD-run HMO, TRICARE Senior Prime, in six sites around the country for military retirees and their dependents who are eligible for the Medicare program. It also creates the option for a second program called Medicare Partners, which would allow regular Medicare+Choice health plans to contract with military treatment facilities to provide specialty care for military retirees who are enrolled in Medicare+Choice plans. The six sites participating in the demonstration are:

• Dover Air Force Base, Dover, DE.
• Fort Carson and the Air Force Academy, Colorado Springs, Colorado;
• Keesler Air Force Base, Biloxi, Mississippi;
• Madigan Army Medical Center, Fort Lewis, Washington;
• Naval Medical Center San Diego, San Diego, California; and
• Wilford Hall Medical Center and Brooke Army Medical Center, San Antonio, Texas, Sheppard Air Force Base, Wichita Falls, Texas, and Fort Sill, Lawton, Oklahoma;

The TRICARE Senior Prime Option provides a full range of Medicare benefits to enrollees. Covered services include the standard Medicare benefits, including skilled nursing facilities and home health care, as well as other TRICARE benefits such as pharmaceutical coverage. The demonstration sites must meet all conditions of participation required of Medicare+Choice plans except those waived in the memorandum of agreement related to fiscal soundness and licensure for physicians in the State where they are practicing (due to the nature of military assignments).

DoD is obligated to spend as much for the care of those in the demonstration areas as it already spends on them, known as its "level of effort." Medicare pays for care only after the DoD has met its agreed upon historic level of effort. Once the level of effort is met, Medicare will pay 95 percent of the county-based rate it pays for beneficiaries in Medicare+Choice plans, minus the cost of medical education, disproportionate share payments, and a portion of hospital capital payments, which DoD funds separately.

Enrollment is voluntary and enrollees agree to receive all covered services through TRICARE. Services from civilian providers who furnish services not available at military facilities require a copayment. The DoD is not charging a premium for the first year of the demonstration. Prior to this demonstration, dually eligible beneficiaries could only be treated at DoD facilities on a "space available" basis. Medicare payments to DoD are capped at $50 million in the first year, $60 million in the second year, and $65 million in the third year..

GAO Concerns

The GAO report raises two important concerns about the DoD subvention demonstration:

• DoD's estimates of its level of effort may be over or underestimated; and
• Data problems and payment issues could make the demonstration difficult to manage at both the national and local levels.

We are working with the DoD to address these concerns, and the DoD has been extremely helpful in this regard. In reviewing the level of effort methodology and baseline data, we determined that we should devote additional staff and resources to reviewing the DoD's data and methodology, and are therefore hiring an outside contractor to help us in this effort.

DoD Subvention Evaluation Plan

We have contracted with RAND, Inc., to evaluate the DoD demonstration, and they have submitted a detailed plan for their evaluation. It includes assessments of:

• impact on the costs to both the Medicare Trust Funds and DoD;
• whether there is improved access to care;
• any change in quality of care provided to the demonstration population; and

• any impact on the local health care providers and other Medicare beneficiaries in the surrounding community.

There will be interim reports in July of 1999, March of 2000, and March of 2001. And RAND will issue a final report in December of 2001. This evaluation is one of two independent evaluations required in the legislation authorizing the demonstration. The law also directs the HHS Inspector General to obtain an evaluation, which will be conducted by the GAO. RAND is coordinating with the GAO to insure that their independent efforts are complementary.

VA DEMONSTRATION

We are also working toward implementation of a Veterans Affairs subvention demonstration, in which Medicare will pay for care in the VA health care system for Medicare beneficiaries who are also eligible for VA health care benefits. We believe this could provide more access to VA services for veterans, savings to the Medicare Trust Funds, and administrative efficiencies to both programs.

The memorandum of agreement between HCFA and the VA is modeled on the DoD demonstration and, like the DoD demonstration, relies upon a coordinated care model. Medicare will reimburse the VA for health services provided through an HMO-like organization run by the VA to Medicare beneficiaries who are Priority 7 veterans (generally those without a service-connected disability who are above the VA income threshold).

Beneficiaries who enroll in the demonstration will be able to use their Medicare benefits to obtain Medicare coordinated care services at VA facilities and other sites under contract to the VA. The VA organization will provide the complete range of Medicare benefits, and adhere to the conditions of participation and quality standards required of Medicare+Choice plans. As with the DoD, the VA will receive Medicare payments only after it surpasses its current level of effort for dual-eligible beneficiaries in demonstration site facilities. After the VA meets its level of effort, Medicare will reimburse the VA at the rate of 95 percent of county-based Medicare+Choice capitation rates, excluding the cost of medical education, disproportionate share payments, and a portion of hospital capital payments. As we are able, we will risk adjust payments so they take into account enrollee health status.

We have taken care in designing this demonstration to protect the Medicare Trust Funds. If Medicare costs are more than they would have been without the demonstration, Medicare and the VA have agreed to take any necessary corrective action. For example, the VA may refund Medicare, we may suspend or terminate the demonstration, or we may adjust payments. To further insulate Medicare from financial risk, a "cap"of $50 million a year will be placed on the total Medicare reimbursement to VA. Furthermore, the VA has agreed to open its facilities to audits by HCFA and the HHS Inspector General.

We have addressed issues the GAO identified in its evaluation of the DoD demonstration in our planning of the VA demonstration. For example, as with the DoD subvention demonstration we plan to base the level of effort calculation on actual expenditures the VA made during a specified base period. We are working with the VA to make sure we have the information we need to make accurate and reliable payments based upon a valid baseline.

Thus, we strongly believe that we have taken all possible steps to protect beneficiaries, the Trust Funds, and the VA from any potential adverse outcomes. And, as with the DoD demonstration, we will solicit a rigorous evaluation by an independent evaluator. Over the 3 years of the demonstration, the independent evaluator will monitor performance and collect data on:

• impact on the costs to either the Medicare Trust Funds or VA;
• whether there is improved access to health care;
• any change in quality of care provided to the demonstration population; and
• any effect on local health care providers and other Medicare beneficiaries in the surrounding community.

Focusing on Coordinated Care

The DoD demonstration is limited to coordinated care by statute and, for good reasons, we have limited the proposed VA demonstration to coordinated care. This will:

• promote higher quality through better coordinated care;
• protect the Medicare Trust Funds
• limit the administrative burden; and
• provide consistency between the two demonstrations.

Under a coordinated care model, enrollees would obtain all services from or through the VA. This will ensure that all needed care is received from the appropriate providers who have access to patient records and other needed patient information. We believe it will help ensure that beneficiaries receive high quality, coordinated care. It will help the VA better anticipate costs and payment amounts, resulting in better planning and improved access to care. It also means the demonstration will more likely remain within the spending caps established in the memorandum of agreement, thereby minimizing the likelihood that participation will be curtailed later in the demonstration. And a coordinated care model also will better protect the Medicare Trust Funds by removing many of the unknowns and risks inherent in a fee-for-service model.

Focusing on one model will also minimize the demonstration's administrative burden to the VA and to HCFA. In addition, our memorandum of agreement with the VA is similar to the one we have with the DoD and, as proposed, our role is similar in both demonstrations. Therefore, we can leverage the staff, resources, and lessons learned between the two demonstrations, something that can only be achieved with some level of consistency between the two programs.

I would like to alert the Committee that it does take a long time to implement a demonstration of this complexity, even when only one service-delivery model is used. With the DoD demonstration receiving high-priority implementation treatment from both HCFA and DoD, it took between 13 and 17 months to deliver services in sites after passage of authorizing legislation.

Conclusion