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Written Testimony of

 David J. McIntyre, Jr.
President and CEO 
TriWest Healthcare Alliance

May 17, 2001

Introductory Comments

Mr. Chairman, and distinguished members of the House Armed Services Committee's Subcommittee on Military Personnel, I would like to thank you for the invitation to once again appear before you to discuss the state of the TRICARE program in the Central Region and the outlook for TRICARE and the Defense Health Program (DHP). 

My name is David McIntyre. I am the president and CEO of TriWest Healthcare Alliance, a private, for-profit corporation that was formed for the express purpose of bidding on and administering the TRICARE contract for the 16-state TRICARE Central Region. TriWest is owned by 11 Blue Cross and Blue Shield plans and two University Hospital systems, all of which are based within the geographic area that comprises the Central Region. Most of these health care entities have been serving the health care needs of the communities in which they are located for more than 50 years. Today, in addition to the more than 1.1 million TRICARE-eligible beneficiaries in the Central Region, these prominent local health care entities service the health care needs of over 10 million individuals located within the Region through other health plans.

As TRICARE moves into its fifth year of delivering services to eligible TRICARE beneficiaries in the Central Region, I would be remiss if I did not begin by acknowledging the tremendous strides that the entire Central Region partnership (the TRICARE Central Region Lead Agency, the Office of the Assistant Secretary of Defense for Health Affairs (HA), the TRICARE Management Activity (TMA), the Region's 26 military treatment facilities (MTFs), and TriWest) has made in taking the TRICARE program from its infancy just four years ago to what is now a maturing and multi-faceted program. In addition, we recognize that service members and their families would not be accessing the robust program they have today were it not for the support and commitment of many groups, including the Congress and specifically this Committee.   

While various challenges akin to those facing other federal programs still exist, I strongly believe that TRICARE has weathered the storm of criticism that comes with any new program or benefit, and is stronger because of it. Without doubt, the overwhelming support of the TRICARE Senior Prime (TSP) demonstration in Colorado Springs, Colorado (and other locations throughout the country), combined with the recently implemented TRICARE Senior Pharmacy (TSRx) benefit, in addition to other benefits brought about by the Fiscal Year '01 National Defense Authorization Act (NDAA FY '01) will further solidify TRICARE's importance to active duty service members (ADSMs), retirees and their families, as well as the 65-and-over population.

The NDAA FY '01 brought TRICARE-eligible beneficiaries the most sweeping changes in military health care since the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) program was created nearly 40 years ago. The introduction of the TSRx program, TRICARE Prime Remote (TPR) for family members, and the planned implementation of the TRICARE for Life (TFL) program this October will dramatically extend and improve benefits to over 250,000 beneficiaries throughout the Central Region alone, giving many Medicare-eligible beneficiaries the benefits they were promised they would receive after serving their country. Mr. Chairman, I commend you and this committee for your involvement in seeing that these new programs are successfully implemented and are fully funded. We offer any assistance this committee may require to ensure that these benefits are delivered as promised. I would also like to thank Chairman Stump for his leadership on these issues. TriWest is headquartered in Arizona's 3^rd congressional district, and we appreciate the strong working relationship we have with the Congressman and his staff. 

TRICARE Central Region

First, let me present the general demographics of the Central Region.

The Central Region comprises nearly half of the country in a 16-state area that stretches from Arizona, Nevada, and Idaho in the West to Minnesota, Iowa, and Missouri in the East, making it the largest TRICARE Region in the United States. The Region is home to 17 Air Force bases, 9 Army posts and one Naval air station, along with two Base Realignment And Closure (BRAC) sites in Arizona (Williams Air Force Base) and Colorado (Fitzsimons Army Medical Center). While some of these facilities are located in or near large metropolitan areas such as Phoenix, Denver, Omaha, El Paso, and Las Vegas, there are a number of remote and more rural areas, such as Great Falls, Montana; Rapid City, South Dakota; Minot, North Dakota; and Alamogordo, New Mexico.

Enrollment in the TRICARE Prime option in the Central Region has remained at the target level of approximately 350,000 enrollees for the third year in a row. Prime enrollment in the Central Region eclipsed the government's five-year Prime enrollment projection almost immediately, and has remained at this level since that time, with no major spikes or dips in enrollment. TriWest sees this data as a sign that the Prime option is accepted by the TRICARE-eligible population and recognized as a good value for the beneficiary, while also being cost-effective for the government. Not to mention the fact that we are recognized by the beneficiary population as doing right by them.

A major topic last year was the optimization of the Military Health System (MHS) and the services provided by both the military and the Managed Care Support (MCS) contractors. We in the Central Region have focused increased attention on customer service, an important aspect of which is the coordination and communication among the Central Region Lead Agency, the MTFs in the Region, and TriWest.

In fact, at the national TRICARE Conference in Washington this past January, the Department of Defense (DoD) and HA recognized a number of MTFs for outstanding achievement in customer service and appointment accessibility, and the TRICARE Central Region stood out among the others, receiving the greatest number of awards for appointing and overall customer service. TriWest has a strong partnership with the MTFs in the Region and we are proud of our MTFs for this prestigious acknowledgement.

It is this partnering effort that both TriWest and our military partners see as a crucial step in the overall process of providing excellent service and care to this population of beneficiaries. Partnerships must share a common vision and approach to issues such as customer service, appointment making, and care coordination, or they cannot achieve the optimization that is ultimately the collective goal. The fact that nearly one-third of TriWest's workforce is either a military retiree or a family member of an ADSM also contributes significantly to the focus we, as a company, have on this vision, as it gives these employees a vested interest in the success of the program because many of them choose to utilize their TRICARE benefits as their primary health benefits plan.

We certainly have not achieved all of our goals in relation to these customer service issues, but as long as we continue to strengthen our partnership and keep our goals focused on the beneficiary, there is no question that our joint efforts will continue to drive superior service and a collective pride in fulfilling the needs of our beneficiaries. Individual beneficiary circumstances will alert us to those portions of the program that need adjusting, supporting the maturing process of the entire program.

            As some of you may know, TriWest came to exist as a result of a group of health care businesses wanting to create a strong and viable business to serve this very unique and deserving population. Though the program is sometimes wrought with overwhelming complexities and seemingly endless crises, we did not during creation, nor do we now, lose sight of the fact that what we all do has deep purpose and meaning and carries with it an awesome responsibility.a responsibility to the men and women who serve in defense of our freedom and to their readiness for duty.

This is best exemplified by a very specific case that TriWest became involved in and that ultimately became, for all of us at TriWest, a poignant example of why we came together to do this work and why we are all here today, seeking further ways to improve the program. It is a clear illustration of how, in the process of operation, unmet needs are discovered and, with all components of the system working together to resolve issues, the program matures in ways that simply could not have been anticipated by those who designed the program.

This particular case involved the daughter of an active-duty Navy commander. The commander and his family were living in the Tidewater, Virginia area when he received orders to the Strategic Command at Offutt Air Force Base, in the Central Region. His family stayed behind in Virginia so that the children could complete the school year. Unfortunately, tragedy struck when the commander's young daughter was hit by a car on her way home from school. Her condition was critical, and the early prognosis was not good. She had suffered severe head trauma and brain injuries that left her in a coma. Initially, the young girl's care was the responsibility of the TRICARE contractor in the Mid-Atlantic Region. However, after nearly two months of preparation, the still-comatose girl was flown to Nebraska to be closer to her family. The move created a number of challenges for the DoD, and frankly, for TriWest. Through this case, we faced the daunting task of working through interregional patient transfers and the difficult issues surrounding medical care for a custodial care patient.

Once the Navy commander's daughter landed in Nebraska, TriWest's medical director took charge of the case and worked very closely with her family to provide her with the best care possible. After nearly four months, the young patient came out of her coma. It was a gradual process (and long-term rehabilitation will be needed), but this young patient made dramatic improvements in a relatively short period of time.

Recently, Dr. Jerry Sanders, our Vice President of Medical Affairs, and I had the privilege to attend, at her father's invitation, his change of command ceremony as he accepted command of a Trident submarine. We watched his daughter take her first unassisted steps as she walked to her seat at the ceremony. How proud we were of both of their accomplishments and our small role in getting them there. Her situation, as unfortunate as it was, has helped the system to mature. Working with the family, TriWest has developed a process to address complex health cases that is now in use by the DoD and soon may be implemented by all of the MCS contractors. This proactive process has drawn praise from the DoD and the military associations. More importantly, it has resulted in profoundly successful outcomes for several Central Region beneficiaries and their families.   

How privileged we are to play such a role-a privilege I never felt more deeply than when we were addressing the health care issues this Navy family faced, knowing that the positive progression of the young girl's health allowed her father to feel secure in continuing to serve his country by assuming such a critical command. And in the course of these events, we developed the Complex Health Care Case Program.

Accomplishments/Lessons Learned 

Pharmacy Enhancements

One of the toughest issues TRICARE encountered while maturing was uncoordinated pharmacy access points and spiraling pharmacy costs. This Committee recognized early on the need to develop a fully integrated, well-functioning pharmacy program across the entire military health care system, and went a long way toward giving the system the tools it needed. Under the authority of the FY '00 NDAA, the DoD developed the Pharmacy Data Transaction Service (PDTS) as the first phase of an integrated pharmacy program intended to enhance patient safety and improve the quality of pharmaceutical care within the MHS.

PDTS, a centralized data repository, created the first capability to record information about the prescriptions being filled for the 8.3 million beneficiaries who receive pharmaceutical care in the MHS. Pharmaceutical utilization information will be submitted to PDTS from 587 Army, Air Force and Navy treatment facilities worldwide, as well as from the retail pharmacy networks of five regional MCS contractors and the National Mail Order Pharmacy (NMOP). Previously, each pharmacy option maintained separate prescription profiles that could not be integrated.

PDTS is intended to improve the quality of prescription services and enhance patient safety for members of the highly transient military population by enabling pharmacists to conduct online prospective drug utilization review (clinical screening). Each new or refill prescription will be viewed against a patient's complete pharmaceutical history before it is dispensed, helping to safeguard against potentially dangerous drug interactions, therapeutic overlaps and duplicate treatments.

The Central Region was at the forefront of the above-mentioned changes. TriWest and its subcontractor, Express Scripts, one of the nation's largest independent pharmacy benefit managers, were first to successfully implement PDTS. As this initiative is critical to the effective management of the DoD pharmacy benefit and is essential for patient safety, implementation of the PDTS was truly a milestone for us as a company. Integrated data pivots on top-notch information systems capability, which has been a focus of TriWest in more than just the pharmacy area.

Another lesson learned was that a portion of the MHS population served, those who are Medicare eligible, were in dire need of a pharmacy benefit. Effective April 1, 2001, the new TRICARE Senior Pharmacy (TSRx) program began providing enhanced pharmacy benefits for Medicare-eligible retirees of the uniformed services, their family members and survivors who are 65 years of age and older. Developed under provisions this committee set out, this time in the FY '01 NDAA, the TSRx program authorizes eligible beneficiaries to obtain low-cost prescription medication from MTFs, the NMOP, and TRICARE network and non-network civilian pharmacies.

On April 1, which was a Sunday, we filled nearly 1,300 prescriptions for the Medicare-eligible population. On Monday, we filled nearly 5,700, and by week's end we had totaled nearly 22,000 prescriptions filled. This more than doubled our usual volume for the under 65 population. By the end of the month, we had filled nearly 60,000 prescriptions for those who are 65 or over at a cost of $2.7 million. Our system was able to handle this workload. In the first 48 hours, we had to make some minor adjustments to handle the high volume of network pharmacy point-of-sale eligibility queries, but for the most part we handled the workload without flaws. This is a sign of a maturing system, in addition to an acknowledgment that this new benefit is welcomed by the eligible population.

Global Settlement

The GAO's April 2001 report on management of the change order process, "Continued Management Focus Key to Settling TRICARE Change Orders Quickly" (GAO-01-513), is very timely. There has been much criticism over the global settlements that the DoD negotiated with the TRICARE MCS contractors late last year. The GAO report, however, should help to correct the most common misconception associated with globalization-that the TRICARE contractors profited substantially from these settlements, largely at the expense of the direct care system. That perception is simply not accurate. The global settlements resulted from long-standing, unsettled liabilities that the DoD had accrued for services already delivered, due in large part to the sluggish and burdensome complexities of the change order process.

Given the aforementioned circumstances, I would like to take this opportunity to explain the global settlement process from TriWest's point of view. The TRICARE program is a significant departure from the old CHAMPUS program. It is a more robust program, which offers beneficiaries greater choice and access to quality health care. As with any complex undertaking, issues were identified during the implementation of TRICARE that required flexibility in administrative and operational processes to improve the program's effectiveness. Additionally, there have been numerous benefit changes that required contract modifications. As a result, the government issued a number of change orders over the life of the TRICARE contracts.

Unfortunately, the DoD was not adequately prepared to estimate the costs of these changes or to settle these changes with the TRICARE contractors. In fact, according to the GAO report, TMA had issued nearly 1,100 change orders to its TRICARE contracts as of June 30, 2000, but had met its goal to settle change orders within 180 days of issuance less than 20 percent of the time. In other words, over 80 percent of the time, the DoD did not settle change orders in a timely manner and, in fact, allowed a number of them to go unsettled for several years-in my company's case, some went back nearly four years.

As the costs associated with unsettled contract modifications continued to grow, they became a substantial liability for TriWest. Therefore, it was necessary for me to inform the DoD that if these outstanding debts were not addressed soon, our outside auditors would have forced us to reverse over $100 million in government receivables on our books. As a company dedicated solely to providing care to TRICARE beneficiaries, TriWest had no commercial business "reserves" on which to fall back. Fortunately, the DoD's leadership responded positively and made a commitment to promptly address this difficult issue. I commend them for their responsiveness and willingness to quickly resolve this challenge.

Once DoD had received from the Congress the supplemental appropriations required to cover these liabilities, TriWest and the DoD jointly sat down to negotiate, in good faith, a settlement that was fair to all parties and that required compromise by both sides. In the end, TriWest agreed to an amount that was lower than what we actually were owed for services that had already been provided-we literally received a fraction of the dollar amount that we were owed. Thus, there were absolutely no windfalls for the company. We were happy to compromise in order to protect the system and to allow us to move forward with the government as our partner in our efforts to mature the program and to realize the goal that Congress had envisioned-a cost-effective system providing beneficiaries with access to quality health care services.

The global settlement experience has shown us how important it is to ensure adequate funding of the entire DHP. As a result, TriWest again has worked with the DoD and the beneficiary associations to seek full funding for the FY '02 DHP budget. However, full funding alone won't solve the problems that led to the global settlement. Other systemic problems remain that must be addressed.

The GAO report indicates that TMA has begun using a new change order process designed to fix the problem going forward. However, GAO states that it is premature to evaluate the effectiveness of this process because it has not yet been used. The single most critical element must be the use of an improved forecasting process for all future estimates. Cost projections for contract modifications and change orders should be legitimate estimates, not artificially constrained by budgetary concerns. Oftentimes, these estimates have been zero-not because the changes have no cost, but because the DoD at the time simply had no money to obligate to the project. Like the private sector, the DoD should obtain the services of expert, independent actuaries, and estimates should be based upon sound assumptions. Anything less than such an approach is bound to fall short.

The global settlement process was not an easy one for the government or the MCS contractors. The fundamental problem with globalization was that the supplemental appropriations Congress provided were insufficient to meet the needs both of the direct care system and contracted care. The DoD's ability to accurately forecast the cost of all its outstanding liabilities fell dramatically short, and the supplemental funding could not cover the requirements of the entire system. For the TRICARE system to remain effective and robust, all interdependent components of the system must be fully funded-the direct care system, the contracts and the benefit structure. The fact remains that neither the direct care system nor the contractors can deliver all the health care services needed by military beneficiaries. We need to remain focused on that fact and continue to work together for the good of the whole system, and more importantly, for the good of the beneficiaries.

Full Funding of the Defense Health Program (DHP)

One of the drivers behind the need to do the global settlements, in my opinion, was the fact that there had been a problem with sufficiency of funding for the DHP. If you will permit me, I would like to focus for a minute on what I have learned about this critical issue over the last year or so. Beginning in 1993, the DHP was established as the principal appropriation account to fund the delivery of health care services to the men and women in uniform, their dependents, military retirees and their families and others entitled to care. Since its adoption, the DHP has developed the annual budget based on guidelines from the Comptroller, including the medical inflation rate. The DHP is not adjusted to include the health care inflation indices normally associated with a private sector health plan. These indices are much higher than the average annual "government-wide" inflation factors that have been routinely applied to medical programs. Health care indices include variable factors, such as medical technology growth and intensity, medical supplies, and cost increases in health care services.

Since 1993, in lieu of accounting for true inflationary increases, the DoD has used the planned initial savings and cost avoidances that are associated with adopting managed care practices to offset the lack of required program growth. Fortunately, significant drops in inpatient utilization and bed days accompanied with more efficient use of outpatient resources initially enabled DoD to achieve significant efficiencies. Today, however, there is very little, if any, "waste or excess" to squeeze out of the MHS. Yet, for several years, the DHP budget has continued to reflect "savings" from managed care techniques such as utilization management.

There is no more critical and immediate challenge than fully funding the DHP. The challenges confronting the MHS are not dissimilar to those generally facing the nation's health care system-costs and access. In addition, the dual mission of the MHS-delivering care in both peacetime and wartime-requires a unique medical care system that must successfully deliver high-quality care under various circumstances. Adding to this complexity is the fact that the DHP is essentially an entitlement program within the discretionary portion of the DoD budget. Furthermore, the DoD has the added challenge of coordinating the funding of the system across the three military medical departments. Each service utilizes a different methodology for building its Program Objective Memorandum and budget, allocating resources to carry out its unique military mission, and aggregating and reporting data. While the Office of Health Affairs programs and budgets for the consolidated DHP, the three service medical departments control funding for the personnel who actually "operate"' their system. The funding split between Operations and Maintenance and Military Personnel leads to further inconsistencies.

What we do know is that military health care has proven to be one of the top recruiting and retention incentives available to the DoD. As such, the DoD must effectively manage and fully budget for its key quality of life benefit, whether it is delivered in-house or downtown.

Unfortunately, and despite the long-term importance of this benefit, the MHS has, for the last two decades, been plagued with annual budget underestimations that have left significant portions of the program underfunded. The sad reality is that every year since the DHP was created in 1992, the program has required supplemental funding in addition to the funds appropriated. That supplemental funding in FY '01 and the amount now projected for FY '02, both top $1 billion. The understated budgets have often been addressed by reprogramming funds from within the military departments, Congress' appropriating supplemental funding, or internal adjustments in the DHP. However, the result has oftentimes been higher net spending, as some expenses have been pushed to the private sector that would otherwise have been provided in the DoD's direct care system.

The GAO, in reviewing these budget underestimations, notes that the DoD shows total obligational authority increases over time in the DHP; however, the DoD's Program Objective Memorandum projected no program growth in the DHP in constant dollars during the 90's decade, creating unrealistic budgets from the outset across many years.

Nationwide, premiums for health insurance have been rising for several years and have outpaced inflation. Premiums for the Federal Employees Health Benefits Program (FEHBP) overall have increased by 10.5 percent in 2001. OPM indicates that the largest contributor to the premium increase is rising costs of prescription drugs, medical technology, greater utilization rates, and an older population-problems very similar to those occurring in the MHS. Large and small employers alike are also experiencing double-digit increases in health care costs for the second consecutive year. In fact, large employer costs have increased by 13 percent, according to the Towers Perrin Health Care Cost Survey; small mployers expect increases ranging from 10 to 12 percent. The DHP, which purchases about 30 percent of its care from the private sector, is not protected from rising health care costs in the private sector, especially the cost of prescription drugs.

Once the initial savings are achieved through the introduction of managed care techniques, the DoD, along with the private-sector managed care industry, must rely on investments in new technologies to produce much of the necessary savings in the out years. These investments must include new clinical and management information systems that have proven in the private-sector health industry to provide the greatest return on investments for managed care organizations. In this past decade, the DoD made difficult decisions concerning "investment dollars." In order to save "current dollars" during years of fiscal constraint, the Department purposely cut health facilities maintenance dollars and avoided investments that required an upfront outlay of capital in order to achieve substantial out-year savings. As a result, the DoD is now continuing to rely on systems that may be less efficient than those used in commercial health programs.

The long-term savings from investing in new health care technologies could be used to provide better access to care by improving the appointment system, upgrading facilities, hiring administrative support staff, and improving other services. Every reduction in the centralized IM/IT budget, as well as every inaccurate and low inflation adjustment, results in a revised (i.e., lower) baseline for the succeeding years. This cumulative effect will significantly affect the MHS' ability to provide high quality patient care to its beneficiaries. Ultimately, when it comes to deferred or inadequate funding for health care technologies and automation services the real losers are the 8.3 million eligible beneficiaries of the MHS.

The FY '01 NDAA includes provisions that will significantly impact the MHS' spending requirements, most notably the expansion of TRICARE eligibility to Medicare-eligible military retirees and their families and an expanded pharmacy benefit. Such requirements, though clearly appropriate and overdue, will require a significant funding increase in FY '02 to finance these and other new benefits until the establishment of the new Medicare-eligible Military Retiree Health Care Fund in FY '03 which will be a mandatory budget account rather than discretionary. The Administration has included $3.9 billion in its FY '02 DoD budget request for this purpose. The FY '02 Budget Resolution acknowledges another $3.1 billion for the DHP with a nod for an additional $1.4 billion supplemental for FY '01. We can thank our beneficiary associations for that success. They saw the need; and, along with several key Members of Congress, did the necessary leg work to present the critical case to have these provisions included from the beginning in this year's Budget Resolution.

While Congress has continually accommodated such funding shortfalls annually for the DHP, more than one committee of jurisdiction has formally warned the DoD against using this knowledge to continually and consistently underfund the program. As the DoD's leadership and Congress continue to consider funding requirements for the DHP for FY '02 and the out years, decisions about the appropriate budget for the DHP will be of paramount importance and the highest priority, particularly while incorporating the Medicare-eligible military retirees into the system. It is a disservice to rely on the Congress' sense of responsibility to men and women in uniform and our retirees to bail out the DHP each year. What's more, by pushing the bill to the back end of the fiscal year, the government does so at a higher cost due to pushing costs to the private sector. It is also a disservice to the beneficiary population to put its health care program in jeopardy by underfunding the program or by having inadequate funding projection mechanisms for the MHS that do not take into account annually the realities of the health care delivery market. Such actions have a ripple effect of degrading morale and further damaging recruitment and retention efforts.

            I cannot think of a higher priority than fixing the budget estimation problem. I have some programmatic visions for the future, which I will outline next, but spending inordinate amounts of time and resources throughout the program year to focus on crises in budget shortfalls does not help the beneficiary access quality service in a timely manner. That's what we should be doing; providing much-needed services to the men and women (and their families) who have earned it. Without strong estimating systems in place, both the DoD planning process and your policy-making process are done in the dark. What's more, the lack of mature estimating systems and the presence of unfunded requirements puts those of us who perform work as TRICARE contractors in a position where we are unable to deliver on your expectations or forced to float hundreds of millions of dollars until funding catches up with program design. I highly recommend that we deal with the budget once a year; focus on processes that forecast that budget as accurately as possible; and spend the rest of the year focused on the day-to-day delivery of quality health care.

The Future:

Program Maturation, Partnering and a Fully Integrated System

Program Maturity

During the last several opportunities I have had to address this committee, I discussed the maturation of TRICARE in some detail. While the program has steadily matured, the need to continue the maturity process remains.

It takes time to develop any complex program or organization into a mature, stable, optimally functioning system. My own company is a good example. When we first started TriWest, there were many skeptics who believed that pulling together several disparate entities to work together as a cohesive team was an overly ambitious initiative. There were many challenges to overcome, and we did experience several bumps in the road. However, four years later, TriWest has grown into a mature, efficient organization that is better equipped to forecast and adjust to the changing needs of the MHS environment and its beneficiaries.

Achieving maturity with TRICARE has been a similar process. The creation and implementation of a comprehensive managed care system that provides beneficiaries with better access and choice was a substantial undertaking. Like TriWest's growing experience, there have been challenges and bumps along the way. Reaching a mature state, where the system is stable both operationally and administratively, and has the ability to address issues as they arise, takes time. It does not mean "freezing" the current program with no room for improvements; nor does it mean constantly tweaking it with frequent changes. There is a balance that is needed that allows for necessary changes in a well-coordinated manner, because changes to processes are occasionally needed to improve the entire system. Collectively, we have been addressing these challenges and moving the program forward. I have addressed earlier such program adjustments made in the pharmacy program and with the Complex Health Care Case Program.

Partnering and the Fully Integrated System

            Together, as we look toward the further maturation of TRICARE and how to define the next round of procurements-a topic of much speculation these days-it is clear to me that it is the DoD's role to define the requirements that will best meet the needs of the government. Certainly, this cannot be accomplished without a vision for where we want the system to go with the next awarded contracts and knowing the set of guiding principles to lead us there; without clarification of these issues, no technical writer can identify a single requirement.

            From the Central Region, the Lead Agent, Col. Ted McNitt, and I have had extensive conversations regarding what we believe will best serve the beneficiaries in the Central Region and what will be most cost effective for the government. We have, over time, arrived at the same vision and defined the same goal to reach, from our different facets of the MHS-a truly integrated system, the fullest partnership imaginable among the direct care system, the TRICARE contractor, the VA, and the private sector. Full integration is important so that the direct care system is not competing with the contracted care portion of the system, whether it be for dollars or workload. It is important so that the beneficiaries do not get lost in our day-to-day focus, whether we come to work in a military uniform or not; so that beneficiary care is foremost in our thoughts, and that jurisdictional battles fade from our existence.

I am pleased to say that we have a wonderful example of integration at its finest at Grand Forks Air Force Base in North Dakota, home to the 319^th Air Refueling Wing, located fourteen miles west of the city of Grand Forks near the Minnesota border. The base medical treatment facility offers a full range of primary care services including family medicine, pediatrics, aerospace medicine, optometry, dental clinic, pharmacy, laboratory, and radiology. TriWest's local TRICARE network provides all specialty care, including inpatient, OB, and surgical services. As a beneficiary accesses service through the TRICARE Service Center (TSC), the source of his or her assistance can be from someone in uniform or an employee of TriWest. Working side by side, the TSC staff provide beneficiaries with the same information and the same service from whomever answers the phone or greets the patient at the TSC. It is a total sharing of information with full access to information necessary to treat any beneficiary who requests service. We are true partners, TriWest and the Air Force, at this remote site to best serve the patients we are both privileged to serve.

Maximizing Current Legislative Authorities

            As we look toward the future, it seems clear that we must concentrate on the legislative authority Congress has been so helpful in providing to mature the program, and that the DoD still needs time to implement not only adequately but effectively. We at TriWest took some time to thoroughly review the authorities that already exist and encourage strongly that the Congress focus its attention on perfecting their implementation as crucial for the program's stability and maturation. There is plenty on TRICARE's plate right now, not the least of which is TFL, as the DoD and the day-to-day operators in the field are grappling with the realities of trying to get each program feature right. We all need time for full system maturation. And we have the ability to fine-tune program pieces that will lead to better service for all our beneficiaries while moving toward greater financial stability for the government.

            The legislative authority yet to be fully implemented is the result of this committee's and Congress' foresight to provide the necessary tools for the DoD to realize the vision of TRICARE, maturing the program.

120-Day Payment Adjustments

            For instance, in chapter 55 of title 10 of the United States Code, we are required under the law to adjust for payments, not later than 120 days after the close of each year (10 USC 1081). We have discovered the magnitude to which the problem can grow when we do not do that, as we discussed with the global settlement earlier. The DoD is working on addressing fixes to that process.

Provider Reimbursement

            For more than a few years, I have testified to our commitment to develop a network composed of a full complement of providers necessary to meet the health care delivery needs of the beneficiary population and our frustrations with our inability to bring some providers into the system at 100% of the maximum allowable charge set by the government. In sparsely populated areas of the country where there are few health care providers and/or few TRICARE beneficiaries, the inability to break through the maximum allowable charge prohibits network development and access to certain types of care. Currently, we have two portions of the law that allow the DoD to reimburse health care providers under the TRICARE program at rates higher than the maximum allowable rate to ensure the availability of an adequate number of qualified health care providers (10 USC 1097b), and when health care services would be severely impaired (10 USC 1079 (h)). Despite the Central Region's vast rural geography, with sites that would benefit from the implementation of these provisions, to my knowledge application of this authority has been limited to the State of Alaska. TRICARE for Life adds new incentive to revisit this issue, particularly in the Central Region, which has many areas without Medicare plans at all, and other areas that have only limited access to private fee-for-service or HMO-type plans.

Claims Processing

            Finally, we can all take solace in the tremendous progress that has been made with improvements in claims processing. There are multiple provisions of the law reflecting hopes for claims processing maturation, and they reflect successes in managing claims processing in a timely, effective manner. Now we need time to move more completely to electronic claims submission and adjudication as directed in 10 USC 1095c with new encouragement from within the FY '01 NDAA, and we need to eliminate those design features that do not add value and only serve to increase cost.

Modernizing Business Practices

            If there is one authority that can most effectively mature TRICARE, it is the section of the FY '01 NDAA that sets the requirement of modernizing TRICARE business practices. It is perhaps the provision least tapped into that holds the greatest potential to improve TRICARE services for the beneficiary and reduce the 'hassle' factor in the administration of the program. Its purpose is specifically to enhance efficiency, improve service and achieve commercially recognized standards of performance, and it directs the use of the Internet through commercially available systems and products for simplification of critical administrative processes.

            In the Central Region, both TriWest and the Lead Agent have already begun to move in that direction with our development of a consolidated Internet strategy. Reducing the fragmentation of information and services and decreasing frustration for our beneficiaries is what led our two organizations to come together to create efficient "one-stop shopping" for the health care consumer-in effect creating a single destination point where access to health care and program information, as well as access to online services, could be found. This resulted in the first consolidated public/private web site of its kind for a federal health program, which we call "Central Region, Central Source." It offers all TRICARE constituencies comprehensive TRICARE- and health care-related information, as well as access to certain services online.

For example, beneficiaries can access enrollment services, which provide a cost-effective and time-saving alternative when performing routine administrative duties that come with participation in a health plan and allow active duty family members and Prime Remote-eligible service members the ability to enroll in the program online. Additionally, in conjunction with Magellan Behavioral Health (a subcontractor for the Central Region), we have developed a Mental Health/Depression Outreach section that describes depression and its symptoms and also contains valuable information on ways to cope.

Furthermore, we continue to work on enhancing the functionality of the site, by exploring initiatives such as online appointment scheduling and disease management programs. Our goal is to tap the full intent of the legislative provision to ease the unnecessary administrative hassle of dealing with a health plan that exists to bring benefits to a very deserving population.

Program Stability

            As I have indicated earlier, I place extreme importance on building mechanisms that allow the program to stabilize. And the law already allows and directs for a stable program of benefits (10 USC 1073 (b)). Let us together implement that provision of the law so that positive outcomes are actually achieved.

DoD/VA Resource Sharing

            There is no better time than now to move forward on continued partnering between the DoD and the Department of Veterans Affairs (VA). Secretary Anthony J. Principi, who now heads the VA, chaired the Congressional Commission on Servicemembers and Veterans Transition Assistance. In 1999, the Commission vigorously recommended bringing together the DoD and VA health care systems, while acknowledging that the systems "are unique and irreplaceable national resources with separate missions." The Commission's recommendations included establishing a joint procurement office to purchase pharmaceuticals; surgical supplies and equipment; ensuring that future information technology systems be done jointly to have comparable and compatible information and cost accounting systems to improve resource utilization; and creating a joint cooperative integrated research agenda. Congress has continually directed the two agencies to share resources since 1982 (P.L. 97-174), yet progress and concrete results have been slow in coming.

In May 2000, the GAO released a report, titled "VA and Defense Health Care: Rethinking of Resource Sharing Strategies Is Needed" (GAO-T-HEHS-00-117). The report cited reduced cost of services and improved beneficiary access and patient satisfaction as benefits of sharing, but noted that the sharing activity was concentrated under a few agreements and that as many as 30 percent of agreements were inactive during the year the GAO was reviewing these services. The GAO reported that 75 percent of all inpatient care provided occurred under just 12 local sharing agreements, and 18 percent of the facilities participating in active agreements collected three-quarters of the reimbursements. 

            In the Central Region, we have two magnificent examples of true joint ventures: at Kirtland Air Force Base in Albuquerque, New Mexico; and Nellis Air Force Base near Las Vegas, Nevada. These two locations, where VA and DoD facilities integrated many hospital services and administrative processes, provide 83 percent of all episodes of care provided through VA/DoD joint ventures.

            Additionally, we have entered into other arrangements with the VA for TRICARE beneficiaries, as directed by Section 8111 of Title 38. We have agreements with VA centers in 15 of our 16 states, from mental health services in Salt Lake City, Utah and Fort Harrison, Montana to a full array of medical services at other sites. Unfortunately, we have run into some roadblocks with individual VA facilities coming into the network, such as policies governing reimbursement and processes for approving sharing agreements. However, by assessing what the issues are at the local level for the VA, and seeking the assistance of the VA leadership in solving these issues, we can work toward building a partnership with them and determine solutions and the criteria and conditions that make resource sharing a cost-effective option for the federal government, not solely for the VA or DoD.

            Understandably, we need to think creatively in determining other models that can work. We have a unique circumstance in Alamogordo, New Mexico in which Holloman Air Force Base has come together with a private-sector facility, the Gerald Champion Regional Medical Center (GCRMC), to jointly provide care to the citizens of Otero County and the area's military beneficiaries. GCRMC is Holloman's in-patient facility for its 18,000 beneficiaries in the area, with civilian and military physicians practicing side by side; delivering care that otherwise would not have been available. This may be a model for the VA to participate in as well. With the advent of TFL and the availability of long-term care in the VA, there are more reasons than ever to review opportunities to share expertise, physical infrastructure, and health care services.

            Prior to the formal existence of TRICARE, Congress urged participation of VA medical facilities in the CHAMPUS Reform Initiative in 1991. The VA is an early part of the vision of TRICARE and a critical piece of virtual integration. There have been some successes with the joint purchasing of pharmaceuticals resulting in significant savings for the government, which after all is the sole payer regardless of the agency the purchases run through. There are literally pages of law in Title 38 of the U. S. Code, Section 8111, directing the Departments to cooperate. The law provides and expands authorities and helps to define opportunities. TriWest is fully supportive of further implementing, with the hope of dramatic outcomes, these provisions of the law, as another step toward maturing TRICARE.

TRICARE For Life

            TRICARE for Life is indeed a challenge to implement, given the scope and tight timelines, but it has provided us all with another opportunity to serve. I applaud Dr. Clinton for bringing various constituencies into the planning process for the implementation of TFL; however, it is unfortunate that the tight timelines did not yet afford him the opportunity to bring the MCS contractors more fully into the process. As we continue to mature the operation of the system, I believe we need to stay focused on the value of giving sufficient time for comprehensive planning and implementation. This will ensure that the Department has the benefit of critical input, including that of the MCS contractors, when planning for implementation and estimating cost impact.

I am concerned that the actual cost of TFL may have been underestimated. This again points to the problems with accurate estimating and budgeting, and again is going to create a problem with underfunding that threatens the entire system. Having said that, however, this experience is similar to the estimating problems with the now repealed Medicare Catastrophic Coverage Act of 1988.

Having laid out that quick snapshot of TFL from TriWest's perspective and knowing that you recently held an entire hearing on TFL, I have viewed the implementation of this program as a great opportunity to deliver services to this portion of our community that has fought so long and hard to be part of TRICARE. And, I again commend the Department leadership for having delivered on the early components of TFL on time and with minimal complication. As we reviewed the legal authorities that exist to mature and improve TRICARE, we came across Section 1395ggg of title 42 of the U. S. Code, which sets out the parameters of the Medicare Subvention Project for military retirees. It includes a provision that the administering secretaries may include in the demonstration project any Medicare+Choice plan and execute an agreement between the Medicare+Choice organization and the DoD to provide Medicare health care services to Medicare-eligible military retirees or dependents, and for the DoD to receive payments from the organization for the provision of services. This is not a provision of law that was acted upon in setting up TSP. I would challenge us to relook at that authority as a tool to help take the TFL from the secondary payer program that will be implemented October 1, 2001 to the fully enrolled benefit that Congress envisioned when enacting the FY '01 NDAA. It is an authority that exists waiting to be utilized to mitigate implementation of a highly complex program.

Virtual Integration Demonstration

Our most ambitious project would use the long-standing demonstration authority (10 USC 1092) to look at one area of our region and try a truly and fully integrated system, providing full access among all the parties (DoD, VA, MCS contractor and other private-sector entities) to all resources, making joint determinations for the best decisions on delivery of health care and having the greatest impact on financial efficiencies. It would prevent decisions in one portion of the system from having a negative impact on the operations of another portion, or on the overall cost of service delivery to the single payer, the federal government.

Conclusion

            In closing, Mr. Chairman, I would like to again thank you and the Committee for all you have done to help the Department of Defense bring top quality, accessible health care to the men and women who serve in defense of our freedom. I would also like to thank you for giving me the opportunity to discuss these issues.

From the beginning, TriWest Healthcare Alliance has worked to become true partners in this undertaking. While it has been a richly rewarding experience, in that together we have made dramatic improvements in the Defense Health Program, there remains, as you know, much work to be done.

            I believe that true success will only come from a foundation rooted in a true partnership among the military services, the Department of Defense, and the Managed Care Support Contractors. The partnership must be based on shared commitment to common goals, mutual trust, and acceptance of the best health care management practices.

            With this partnership in place, we can, with the support of the Congress, continue to optimize every aspect of the Military Health System in order to ensure that those who serve, those who have served, and their families receive the medical care that they deserve and that is consistent with their sacrifices to the nation.

            There remains much to do. However, my military and civilian partners in the Central Region are committed to success in this area, and we look forward to working with you and this Committee to refine the TRICARE health system through the coming months and years. Thank you very much.

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