Military Health System Transforming to Address New Challenges

The armed forces have more than 275,000 servicemembers in Afghanistan, Iraq and other areas around the world, David S. C. Chu, undersecretary of Defense for personnel and readiness, said yesterday in prepared remarks before the House Armed Services Committee's subcommittee on military personnel.

"The department is firmly committed to protecting the health of these and all servicemembers before, during and after their deployment and (of) our other healthcare beneficiaries, who now number 9 million," he said.

Several changes in the military health system will make achieving this goal possible, he said. One of the biggest will address the rising costs of health care.

The military health system has essentially doubled in size in the past five years from about $19 billion in 2001 to $38 billion this year, he said. Officials estimate expenditures could reach $64 billion by 2015, he added.

"This rapid growth in cost clearly puts the sustainability of our health benefit at risk," Chu said. "The facts show that the expansion of Tricare, high health inflation, the reduction in beneficiary cost shares, and sharp increase of usage by our retirees under 65 is responsible for this growth."

Beneficiaries paid 27 percent of total health costs in 1995. Today they pay only 12 percent. The DoD proposes to bring this into better balance by increasing cost sharing for retirees under 65. After a two-year transition, beginning in fiscal 2009, these premium and co-pay increases would match the average percentage increase of the Federal Employees Health Benefit Program, he said. Additionally, the department is proposing changes to pharmacy co-payments for all beneficiaries except active-duty members. These changes would encourage use of mail order and military treatment facility pharmacy refills and generic products.

"We also ask that Congress clarify to those who oppose the department our legal authority to obtain federal pricing discounts for prescriptions obtained at retail pharmacies," he said.

The department expects to save about $735 million in fiscal 2007, if both premium and deductible changes as well as pharmacy program adjustments are implemented, he said. Between fiscal 2007 and 2011, expected savings total $11.2 billion.

DoD also has addressed internal efficiencies. "We have implemented a number of actions in the last several years designed to slow health care cost," he said.

A partnership with the Department of Veterans Affairs and obtaining federal pricing for mail order and pharmacy services have contributed to this, Chu said. Consolidation of Tricare contracts, regions and contractors also has led to significant administrative savings.

New healthcare contracts use best-practice principles to enhance quality of care, emphasize patient safety, improve beneficiary satisfaction, and control private-sector costs, he said.

However, Congress-imposed restrictions on funding adversely affect military treatment facilities as well as private-sector care, he said. "We need the flexibility to move funds between direct-care and private-sector care," Chu said. This would allow DoD to set military treatment facilities' budgets based on workload output, not staff numbers, supply costs and other materials, he added.

DoD's medical health system also is revamping its infrastructure. Medical centers in the national capital area and San Antonio will be consolidated, he said. By contrast, some areas, such as Fort Belvoir, Va., will see significant enhancements.

"Another substantial change to the (military health system) infrastructure is the development of joint facilities as a result of increased collaboration with the VA," Chu said. "The most visible example today is at Naval Hospital Great Lakes."

There, an aging, oversized hospital is being replaced with a new outpatient facility at North Chicago VA Medical Center, he said.

Looking to the future, Chu said, DoD will adapt to new challenges by building on today's achievements. "The transformation process is designed to provide the armed forces with world-class operational-medicine capabilities while delivering the outstanding Tricare benefit to our beneficiaries," he said.