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TESTIMONY OF
MR. JAMES E. WOYS
PRESIDENT
HEALTH NET FEDERAL SERVICES, INC.

BEFORE THE
SUBCOMMITTEE ON TOTAL FORCE
HOUSE ARMED SERVICES COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES

REGARDING
DEFENSE HEALTH PROGRAMS

 March 18, 2004

Introduction

 

Mr. Chairman and distinguished members of this Subcommittee, thank you for this opportunity to share with you our experiences in the TRICARE Program and offer perspectives from a long-time participant in the program and the managed care support contractor for the new TRICARE North region.

Health Net Federal Services (Health Net) has had the privilege being involved in military health care for over 16 years.    We take pride in our accomplishments - working from the first tentative steps of CHAMPUS Reform Initiative, slowly building to the highly evolved TRICARE programs of today.

Under the next generation of TRICARE contracts, Health Net has been given a rare opportunity. The challenges presented by the new TRICARE contracts gave us the opportunity to take what we have built over the previous years, look at it in a new light and come up with a new way to do business.

The result of Health Net's reinvention of its business is a solution that is focused on performance outcomes for our customer while incorporating quality into every aspect of our operations. Our solution builds on what has worked successfully for us today, and introduces new, exciting services and technologies that will serve the program and our customers. 

Background

Health Net has been with the Department of Defense (DoD) since the beginning of the TRICARE Program, previously known as CHAMPUS. We were awarded the first CHAMPUS Reform Initiative (CRI) contract in California and Hawaii in 1988.

Health Net is the current Managed Care Support Contractor (MCSC) for five TRICARE Regions and the State of Alaska under three managed care support contracts, covering over 2.5 million TRICARE eligible beneficiaries.  Our contracts currently cover the following States: Oklahoma, Texas (excluding El Paso), Arkansas, Louisiana (excluding New Orleans), California, Yuma, Arizona, Washington, Oregon, Hawaii, Alaska, and Northern Idaho.  Health Net and its subcontractors have over 4,500 associates across the country serving our three managed care support contracts in 11 states.

On August 21, 2003, the DoD awarded the next generation of TRICARE Contracts that will provide healthcare services to over 8 million uniformed services beneficiaries to Health Net Federal Services, Humana Military Health Care Services, and TriWest Healthcare Alliance.

The new TRICARE Contracts will replace the current seven contracts over the next 10 months and be restructured into three TRICARE Contracts encompassing three regions within the United States: the North Region, South Region, and West Region.

Health Net was awarded the newly formed TRICARE North Region which is comprised of the current Regions 1 and 2 and 5 providing healthcare services to 2.7 million uniformed services beneficiaries.  The North Region will include: Connecticut, Delaware, the District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, and Wisconsin.  In addition, the contract covers a small portion of Tennessee, Missouri and Iowa.

The transition into the new contracts began on September 1, 2003.  Health care delivery for the newly aligned region begins in June of 2004.  The North Region will be phased in, starting with the current Regions 2 and 5 states on July 1, 2004 and current Region 1 states on September 1, 2004.

Health Net Federal Services' parent company, Health Net, Inc. (HNI), is one of the nation's largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable and to enhance the quality of life for its customers by offering products distinguished by their quality, service, and affordability.

My objective is to provide you with information on our performance in the current TRICARE managed care support contracts, offer status on the phase-out activities relating to the current contracts, as well as, present a status of transition activities for the new TRICARE North Contract.  I will also share with you our successes in the DoD/VA sharing arena.  As we move forward into a stronger TRICARE Program, there are areas that still require attention.  I will offer our issues and concerns relating to those areas.

Current Contract Performance

Health Net's first obligation is to fulfill it's current contract requirements and maintain a level of performance that exceeds our contract standards.  It is extremely important that while the Military Health System is experiencing multiple transitions and changes, performance under the existing contracts must not deteriate.

Claims Processing

Health Net processed more than 27 million TRICARE claims in FY 2003.  Claims volume rose dramatically by 19% in FY 2003 compared with FY 2002, recognizing a full year of TRICARE for Life (TFL) claims.  Remarkably, 99.98% of these claims were processed within 30 days of receipt and 99.99% were completed within 60 days of receipt.  The table below evidences a 250% increase in claims volume between FY 2001 and FY 2003, influenced significantly by TFL, while the high percentage of claims processed within 30 days remained consistent.  Provider utilization of internet-based claims processing capabilities available through Health Net, greater electronic claims receipts and process and productivity improvements resulted in expedient payment to TRICARE providers in spite of the substantial increase in claims volume.

CLAIMS PROCESSING
	FY2001	FY2002	FY2003
Total Claims	10,843,020	23,029,123*	27,392,129
% Processed w/in 30 days	98.89%	98.13%	99.98%
*TRICARE for Life (TFL) program began 10/1/2002

The timely and accurate adjudication of claims, regardless of the volume received, is the single most important factor in retaining network providers, and ensuring that standard providers are amenable, to deliver health care services to TRICARE beneficiaries.

Call Center

Over 17,000 telephone calls from beneficiaries, providers and other TRICARE stakeholders were taken by Health Net Call Center each business day in FY 2003.  Health Net delivered a first call resolution rate of 97% for the 4.2 million calls received during the year, which is 23% more calls than were received just 2 years earlier.  The chart below depicts the call volume received in Health Net Call Center over the past 3 years and the high percentage of calls resolved to the caller's satisfaction during the initial call.  All calls were resolved within 10 days of the initial call.  Less than one-half of one percent of attempted calls received a busy signal, minimizing frustration experienced by our TRICARE constituents in their quest to obtain information or seek assistance.  Callers most frequently sought resolution to benefits, provider, claims or fee inquiries constituting nearly 60% of the call volume.

CALL CENTER
	FY2001	FY2002	FY2003
Total Calls	3,406,756	4,086,674*	4,190,618
% Resolved During First Call	94.3%	95.1%	97.0%
*TRICARE for Life (TFL) program began 10/1/2002

Health Net's Call Center goal is to deliver prompt, consistent, and accurate information that results in a high first call resolution rate, which is a key metric in measuring beneficiary and customer satisfaction.

TRICARE Service Centers

TRICARE Service Centers (TSCs) continue as one of the primary means used by beneficiaries to obtain program information and secure resolution of difficulties being experienced.  Health Net had over 737,000 personal visits to its TSCs and responded to nearly 1.6 million telephone calls placed to TSCs during FY 2003.  The table below indicates that while the number of walk-in visits have remained relatively constant over the past 3 years, telephone call volume has increased by more than 23%.  Based on voluntary completion of performance assessment forms by visitors to Health Net's TSCs, services provided were fulfilling beneficiaries' expectations.  Principle reasons for either visiting or calling a TSC include, in descending volume order, enrollment information and assistance, general program information, authorization or referral for services, effecting changes and claims.

TRICARE SERVICE CENTERS
	FY2001	FY2002	FY2003
Total Walk-In Customer Visits	745,378	775,653*	737,062
Total Telephone Calls	1,280,185	1,463,336*	1,584,000
Total Service Center Contacts	2,025,563	2,238,989*	2,321,062
*TRICARE for Life (TFL) program began 10/1/2002

The TSCs are Health Net's principle face-to-face touch point with beneficiaries and contribute significantly to the level of overall satisfaction with the TRICARE Program.

Provider Network

Health Net remains committed to complementing the Military Health System (MHS) with purchased care network providers, producing a complete health care delivery system for beneficiaries in its contract regions.  At the conclusion of FY 2003, and to fulfill its mission to make available a complete health care delivery system, Health Net's provider network consisted of more than 78,000 providers, including 586 acute care hospitals and over 12,000 PCMs.  Reimbursement rates remain relatively level contributing to providers' general disaffection with CHAMPUS Maximum Allowable Charge (CMAC) pricing.  In spite of this concern, Health Net continues to experience low attrition rates within its provider network averaging between 2-3% per year.  While network attrition does occur, Health Net has been able to immediately secure additional providers to ensure that access to medical care is uninterrupted.  Health Net continues to deliver a provider network that complements the MHS, in spite of capacity and capability fluctuations influenced by deployments of direct care clinical staff to war theaters, and ensures beneficiaries have access to quality medical care when it is needed.

Authorizations and Referrals

During FY 2003 Health Net reviewed more than 687,000 authorizations and referrals to ensure beneficiaries received quality medical care rendered by qualified physicians or providers in an appropriate setting.  Health Net provides high quality services through its provider network, consisting of both direct care and purchased care providers, as an integral part of delivering best value healthcare.  The chart below reveals that the number of authorizations and referrals requested has remained constant from FY 2002 to FY 2003. 

AUTHORIZATIONS and REFERRALS
		FY2002	FY2003
Total Authorizations		33,618	34,954
Total Referrals		660,886	652,526
Grand Totals		694,504	687,480

Managing the medical care of beneficiaries ensures that the best possible outcome is achieved for each beneficiary requiring either an authorization or referral.

Enrollment

Enrollment of Active Duty Dependents (ADD), Non-Active Duty Dependents (NADD), TRICARE Prime Remote (TPR), and TRICARE Prime Remote Active Duty Service Members (TRPADSM) beneficiaries in Prime in all regions serviced by Health Net totaled nearly 1 million at the conclusion of FY 2003.  Additionally, another 353,000 active duty personnel were also enrolled in prime bringing Health Net's total enrolled beneficiary population to 1,350,000.  For FY 2003, Prime enrollment, excluding active duty service members, increased by 4.7% over FY 2002 totals.  The detailed information furnished below chronicles the enrollment growth during the past 3 years within the regions Health Net serves.

ENROLLMENT
Prime Enrollment by Contract1	FY2001	FY2002	FY2003
Region 11	136,649	146,947	153,721
Region 6	363,937	388,237	404,524
Region 9/10/Hawaii	348,322	367,186	384,476
Alaska	33,911	35,721	39,333
Total Prime Enrollment	882,819	938,091	982,054
1 Includes ADD, NADD, TPR, and TPRADFM ; excludes ADSM

These enrollment statistics confirm that as TRICARE meets and exceeds the access, choice and quality expectations of the beneficiary population in the delivery of healthcare and the complete array of customer services, more individuals will elect to avail themselves of the Prime Program benefits.

Military Treatment Facility Optimization and Resource Sharing

Health Net has benefited from the exceptionally strong leadership at the Lead Agent offices responsible for the care delivered in their regions. Equally strong is the partnership we have forged with our Lead Agents, working towards the common goal of providing quality, cost-effective health care to the military health services population.

In support of the Government's goal to optimize services provided within the Military Treatment Facility (MTF), Health Net has established, and continues to improve, its capabilities in support of resource sharing.

During the past 3 years, we were able to recapture over 3.5 million outpatient visits and slightly over 65,000 inpatient admissions. This achievement has enabled military medicine to maintain the proficiency levels necessary for its readiness mission while assuring beneficiary access to quality care.

We continue to believe that the Resource Sharing Program is a vital strategic tool in the optimization of the MHS and supports their readiness mission.  We also believe that the Resource Sharing Program enhances the quality and continuity of care delivered to TRICARE beneficiaries.

Reserve Component Activities

Members of Reserve/Guard Units called up have found themselves suddenly removed from their otherwise calm civilian lives and, in many cases, placed in harm's way. Many have been called away from their families to serve on foreign soil, while still more provide support services here at home - all the while concerned about sustaining a delicate balance between civilian and military life. One of the most important things that we can impart both to the service member being activated and to the family members staying behind is the peace of mind that should their family members need medical attention, the health care needs of their family members will be taken care of.

In 2003, as activation of reservists escalated, Health Net shared TRICARE Program information with more than 82,000 reserve component personnel and their families through more than 850 briefings.  Already in 2004, Health Net has shared TRICARE Program information with more than 10,000 reserve component personnel and their families in over 100 briefings.  Briefings have been held in cities and rural areas all across our regions, sometimes on a schedule covering 7 days a week. 

Health Net is dedicated to continuing its support of the MTF Commanders and Guard and Reserve senior leadership who depend on our assistance.

Congressional Inquiries

Congressional inquiries receive priority attention at Health Net.  We have a dedicated staff with a collective 45 years of TRICARE experience. Our staff works closely with TMA, local military facilities and other government agencies to resolve issues that arise.  It is due to this focus and dedication that the number of congressional inquiries has steadily decreased an average of 18.5% annually. 

CONGRESSIONAL INQUIRIES
By Contract	FY2001		FY2003	Decrease Since 2001
Region 11	99		80	20%
Region 6	349		299	13%
Region 9/10/12	150		108	28%
Total of Inquires	598		487	18.5%
Note: the managed care support contractor does not handle Alaska Inquiries.

Health Net will continue to search out new avenues to lesson the number of inquiries received.  We actively participate on a TMA work group recently convened to address this specific issue.   We are also redesigning our dedicated, secure Government Relations page on our web site, www.healthnetfederalservices.com, to address the most frequently raised issues and offer solutions that will support local district offices in resolving problems.  Our staff is also available via a toll-free telephone number, to personally assist congressional staff should immediate assistance be required.

Historical Perspective on Current Health Care Cost Trends

Throughout 2001, annual health care cost trends in our three TRICARE contracts average about 8%.  Through the first half of the 2002 calendar year, the average held at about 9% annually.  However, since that time there has been a sharp increase.  Annual health care trends jumped to 18% in the second half of 2002, climbing to more than 20% through calendar year 2003.

The substantial jump in trends corresponds closely with the mobilizations and deployments of Operation Iraqi Freedom.  The accelerated trends are not completely explained by the recently activated Reservists, although total health care costs for that group have increased over 50% annually in 2002 and 2003.

Deployments have also affected the workload capabilities of Military Treatment Facilities (MTF's), causing a shift from MTF's to the civilian sector.  Our access to detailed MTF workload data is limited, but government-supplied data indicates that outpatient visits in MTF's in our three contract areas in 2003 are about 15% below the 2001 visit level.

Current Contract Phase-Out Status

Commitment

Health Net has three overarching goals as we phase-out the contracts we have held for the past 9 years.  First, to achieve the appearance of a seamless transition for beneficiaries.  Second, to do everything possible to assure success for the incoming contractor.  Third, to maintain excellent service levels on our current contracts through the end of their performance period.  Our two claims processing subcontractors, Wisconsin Physicians Service (WPS) and Palmetto Government Benefits Administrators (PGBA) have assured me of their commitment to continued excellent performance.

Timing

The services currently performed in each of our three MCS contracts is being succeeded by three separate contracts, resulting in a total of 9 different transitions for Health Net.  Although we have been working with the TMA and incoming contractors since September 2003, these transitions will actually occur over the next 8 months.  Key dates on our calendar are as follows:

On June 1, 2004, retail pharmacy will transition to Express Scripts Inc., from all three of our contracts. 

On April 1, 2004, the TFL services will transfer from our Region 11 contract to WPS.  The TFL service on our other two MCS contracts will transfer to WPS concurrent with the phase-out of those contracts.

On June 1, 2004, our Region 11 MCS contract will transition to TriWest as part of the new West Region.  On July 1, 2004, our Regions 9,10,12 and Alaska MCS contracts will transition to TriWest as part of the new West Region.

On November 1, 2004, our Region 6 MCS contract will transition to Humana Military Healthcare Services (HMHS) as part of the new South Region.

Collaboration with TriWest and Humana Military Healthcare Services

The transition to the next generation of TRICARE contracts is characterized by unprecedented collaboration among the outgoing and incoming contractors.  Biweekly scheduled meetings occur between incoming and outgoing contractors; functional points of contact interface regularly as needed, transition plans and schedules have been integrated.  Every facet has been addressed to optimize the ability of the incoming contractor to hire experienced staff from the outgoing contractor.  Facilities in place at TRICARE Service Centers (TSCs) are being transferred from the outgoing to the incoming contractor to the greatest extent possible, avoiding the disruption of de-installing and installing furniture, equipment and supplies.  Data and information previously considered sensitive is being readily exchanged among contractors in the best interest of the TRICARE program.

It is impossible to address the thousands of tasks involved in phase-out of these contracts, but I will share with you some of the significant activities that illustrate the level of collaboration between contractors.

Transitional Care

Those patients with the most complex medical conditions are identified and placed in our Case Management program under the administration of a nurse case manager.  These patients require special attention during transition.  To make sure no patient is left behind, our transition plan with TriWest calls for a conference between the outgoing and incoming case managers to review the case history and management plan.  This meeting will occur about 30-40 days prior to the end of our contract.  The outgoing case manager will call the patient informing them of the transition and change in case manager.  A letter will be sent to the patient confirming the information given in the telephone call, providing the name and contact number for the new case manager, and notifying them that they will be contacted by the new case manager within one week.  Beneficiaries in special programs such as Program for Persons with Disabilities (PPWFD) will be handled in a like manner.  Health Net expects to create a similar transition arrangement with Humana for the South contract.

Procedures have been coordinated between Health Net and both TriWest and Humana to provide continuity for referral and authorization.  Protocols have been created that establish responsibility for taking the action depending on either date of referral or date of service, with appropriate linkage to our respective the claims payment systems assured.

Provider Communication

In our outgoing regions, we have joined with both TriWest and Humana to send co-signed letters to all of our network providers expressing our appreciation for their support to the TRICARE program and introducing the incoming contractor, welcoming network inquiries and furnishing a new point of contact.   Additionally, we have furnished a detailed database of our provider directory so the incoming contractor would be able to evaluate the size and composition of our network and to initiate contact with any of our providers.  When requested, we are working with the incoming contractor in locations where network development is difficult.

Beneficiary Communication

The outgoing contractors' Beneficiary Newsletters have been used to announce the award of the next generation of TRICARE contracts and to alert beneficiaries to future announcements as to how this may affect them.  Health Net has made claims Explanation of Benefits messages and stuffers available to the incoming contractors.  The incoming contractors will send a direct mailing to each beneficiary approximately 60 days prior to the start of health care delivery providing information about the contract transition and a TRICARE Handbook.

Staffing, Severance and Retention

For the benefit of the TRICARE program and our associates we would like to optimize the number of our experienced staff hired by the incoming contractor, especially in the TSC.  This is a major element of a seamless transition as it presents a knowledgeable, familiar face to the beneficiary from the outset of the new contract.  Extraordinary cooperation between the contractors has allowed for the mapping of existing staff to the incoming contractors business model, facilitation of the recruiting and hiring process, bridging gaps in benefits and coordination of hiring and training dates.  Cooperation between contractors on staffing is critical to assuring resources remain in place to perform the current contracts.  To date TriWest has hired 55 of our associates in Region 11.  Interviews and hiring is in process for our other regions.  For associates who are not hired by the incoming contractor nor have other opportunities within Health Net, we have crafted a severance plan that offers a realistic incentive to remain through the duration of the current contract.  Recognizing the need to stabilize the workforce, Health Net announced its severance and retention plan in October 2003; prior to confirmation from the Government that retention costs would be allowed.  Although we hate to say goodbye to hundreds of our associates in the West and South, we are pleased that many good people will remain in service to the TRICARE beneficiaries in their region.

Transition to TRICARE North Contract

Commitment

Health Net is honored to have been chosen to build a premier model in health care management that will serve 2.7 million beneficiaries in this vital TRICARE geography. We are committed to delivering "day-one readiness" at the start of health care delivery.  We have created a new organization structure to better respond to the five objectives of the new model: Optimization, Beneficiary Satisfaction, Best Value in Health Care, Transition, and Access to Data.  We have been executing a very detailed plan and management process to ensure on-time delivery of services and systems with minimal disruption to TRICARE beneficiaries. We have been working collaboratively with all stakeholders - including the Government's Transition Team, outgoing contractors in the North Region, as well as, the incoming contractors in the South and West. 

Health Net has a unique role in this large-scale transition by virtue of its involvement in all three regions.  We recognize our role as the common denominator across all new regions and take the challenge for executing successful transitions seriously.  We must close down all of our existing contracts and geographic locations in the field, as well as, simultaneously bring up the new North Contract.  We have prepared for this challenge with a three-prong strategy.  First, we have an unprecedented commitment to collaboration, sharing and supporting the incoming and outgoing contractors, our MTF customers and the Government's North Transition Team. Secondly, we have deployed dedicated Transition In and Transition Out Teams.  Thirdly, our operational transition plan provides a detailed roadmap for successful transition.

Timing

The Government's timeline for the North transition is complex.  It calls for two start-ups of health care in 2004.  Regions 2 and 5 will start up on July 1 and Region 1 on September 1.  At the same time Health Net is standing up the North, we will be phasing out of our existing contracts -- Region 11 on June 1, Regions 9,10,12 and Alaska on July 1 and Region 6 on November 1.  While all of this is going on, all Managed Care Support Contractors will be phasing out of pharmacy, TFL, and appointing beginning in April.

Health Phase-In Net Transition Plan

Health Net's transition plan calls for an orderly start-up with tasks spread across 10 months for each transition.  To meet this incredibly demanding timeline, we have developed detailed functional schedules that take into account the staffing, hiring, training, technology, and quality work that needs to occur. Currently, we have a task plan that includes almost 30,000 tasks.  We have over 60 schedules we are maintaining including our work with PGBA, which is an integral part of our North solution.

Our plan draws on our deep experience in transitions.  We know from our experience that building trust through collaborative relationships is critical to a successful transition and ongoing operations. Heath Net's core competency is in building relationships that work - that work for the beneficiary, for the MTF Commander, and for DoD.

Health Net has developed multiple communication forums to ensure that the MTFs and the Government's Transition Team is not surprised by anything and that they always know who to call or how to get a question answered.

Health Net has taken advantage of every communication channel, including face-to-face meetings, telephonic and electronic media.  In addition to our weekly electronic status report, we conduct weekly status meetings between Health Net and  Government Transition Teams to facilitate rapid problem resolution.

A large component of our success in this transition is the knowledgeable, dedicated team of professionals working on this project.  We created a transition management structure that allows for rapid decision-making and skilled execution of our plan. We have teams dedicated to Field Operations, Claims and Customer Service, Enrollment, Provider Network Management, Medical Management and Access to Data.  We also have several teams that are ensuring staffing, training, facilities, and quality tasks are planned for and completed on time.  Our solution for the North incorporates several new technologies.  So, we also have a large technology team that is working with the core teams.  In addition, we have contracted with both PricewaterhouseCoopers (PwC) and EDS to provide professional project management and functional expertise. As of the beginning of March 2004, we have a team of almost 400 people working on this transition, including our claims partner, PGBA.

There is an old project management question --"How does a project get delayed and off track?  The answer is -- one day at a time."  At Health Net, we are focused on doing today's work today.  Our schedules are designed to logically spread the work across the time we are given to do it.  There are so many tasks, if we get off course, we will never catch up.  We have built a tracking program that allows us to manage all the action items that require attention.  We identify items that could jeopardize our on time delivery, and we work quickly to resolve these issues.

The Access to Data Team promised a web-based solution for the North Contract including an enhanced Data Warehouse, new DataMarts, and a new Performance Management Dashboard.  The Access to Data Team has gathered data specifications and reporting requirements.  We have carefully defined and mapped each field in the information warehouse and DataMarts to ensure a robust set of data is available at health care delivery, ready to generate operational and government reports required to make informed business decisions.  The report design period is completed and we are deep into the development process for these reports.  Building off of the data contained within the information warehouse will be a web-based Performance Management Dashboard with over 90 standards and indexes we will monitor and be held accountable for on a daily basis.  Dashboard data will be refreshed on a frequent basis and will be available to the MTFs, TMA, and other important stakeholders.  Our technology partner, EDS, has made tremendous strides in designing the dashboard look and feel, using collaborative design sessions with end-users to gain knowledge about how information will be used and then crafting the tool to best meet the needs.

Health Net has a Quality Department that is charged with documenting our processes for continuous improvement, as well as, maintaining consistency and quality throughout our company.  We are on target for our ISO 9001:2000 registration; which means that by the end of 2004 Health Net will be ISO Certified demonstrating our commitment to quality.  As part of our quality offering, Health Net has developed a process to determine our constituencies' satisfaction.  We will be gathering information based on interactions or touch-points in order to compile an index that will show overall satisfaction for each of our five constituencies.

Health Net has a comprehensive training program which is part of our Health Net University Program.  A curriculum has been developed for each service and new system area to ensure we have a highly trained workforce at the start of health care delivery. All of the training staff are on board and trained, and are actively involved with their respective functional areas to customize the training sessions.  Early training classes for our field operations staff have already commenced.  By the time we bring up Regions 2 and 5, we will have trained over 700 associates.  At the start of health care delivery for Region 1, we will have successfully trained over 1100 Health Net and over 500 PGBA associates.

Health Net will operate out of the Rancho Cordova, San Diego, and the National Capitol and Northeast sub-regions.  Our headquarters will remain in Rancho Cordova with some of our centralized services.  Nevertheless, we are bringing on line a large contingency of field operations, medical management, enrollment, providers services, claims and customer services in the North geography with almost 1000 staff (including PGBA). 

Collaboration Efforts with Outgoing Contractors

Region 2 and 5 Contractor Collaboration - Humana

Health Net and Humana, the incumbent contractor for Regions 2 and 5, recognized early in transition planning that a much more effective and successful transition was possible if we worked closely together, seeking opportunities for eliminating transition risk and ensuring a smooth transition for our customers.  To go one step further, by establishing a reciprocal relationship, Health Net and Humana are able to materially enhance the effectiveness of transition in and out activities between the two companies for Regions 2 and 5 and 6. 

To accomplish these goals, Health Net and Humana met and agreed on forming transition teams that would be closely linked throughout the transition periods of Regions 2 and 5 and Region 6, which occurs 2 months later. Furthermore, Health Net agreed to purchase Humana's network contracts, credentials files and selected TSC assets. Under these arrangements, we also established preferred hiring processes and opportunities for Humana's employees at Health Net, and for Health Net employees at Humana. 

The terms of the purchase agreement will allow us to conduct an orderly transfer of all current TRICARE network participating providers, approximately 28,000, and associated credentials files, from the current TRICARE program managed by Humana into the new TRICARE North region to be managed by Health Net.  This eliminates most risks associated with provider turnover and related loss of primary care or specialty care services for the beneficiary.  Network providers do not have to re-contract to continue in the program and may retain their beneficiary linkages. While there will be some additional contracting activity necessary to cover newly expanded PRIME service areas under Health Net's new solution, the systematic transfer of current provider files ensures that the new program will be fully accessible and ready in time for the July 1 start of health care delivery. 

The acquisition of TSC furnishings and other assets, along with the focused recruitment and hiring of current Humana employees also means that there will be continuity of service, due to retaining local knowledge from those employees who join Health Net from Humana. This greatly enhances our ability to conduct a transparent and non-disruptive transition for beneficiaries.  While it is too early to tell, some estimates would indicate we could have as much as 80% of our field positions filled by current program service staff and local level management.  The Humana organization has worked very well with Health Net staff and we are encouraged that all of the objectives and benefits of our transition partnership will be met, resulting in an unprecedented, successful transition for TRICARE.

Region 1 Contractor Collaboration - Sierra

While we have reciprocal arrangements with the Humana organization for the transfer of services between us in Regions 2 and 5 and 6, the scenario with Sierra is focused only on transitioning out from Sierra to Health Net for Region 1.  However, we took the same approach to forming a highly collaborative working relationship with Sierra as the outgoing contractor in order to achieve a smooth and non-disruptive transition for beneficiaries and for the government.

We reached agreement early this month with Sierra to purchase their current 28,000 civilian network provider contracts throughout the National Capitol Area and the Northeast, along with associated credentials files.  We will also purchase most of the existing TSC assets and have agreed on a preferred consideration of the Sierra employees for hiring into Health Net positions in the new North Region.  Sierra is committing to sustaining all of its current contractual performance standards for Region 1 while working with us to conduct a smooth contract transition.  Sierra will deliver key transition related data and conduct certain activities in coordination with Health Net to ensure the program sustains a high level of service for beneficiaries during the transition period, and to help provide for a successful start of health care delivery on September 1, 2004.

Just as we will do with Humana, we will not have to re-contract with current physicians and hospitals, thereby ensuring that the transition of health care and linkages with patients will continue into the new program. Finally, in regard to current TSC field staff, we have already begun to interview and go through the selection process with Sierra employees.  We expect there to be a high rate of transfer for the high performing Sierra employees to Health Net's TSC operations.

Achieving an orderly transition of key assets and effecting the smooth transfer of program services in coordination with Sierra greatly reduces the risks of transition.  This will occur in terms of timeliness for the start of health care delivery, and in terms of retaining network providers and Sierra field service personnel for the continuity of service to beneficiaries.   Sierra has demonstrated early in our agreement that they are intent on making this transition successful for beneficiaries, and that they will be working cooperatively with Health Net. We are optimistic that our mutual working relationship will be fruitful for the program, and will accomplish a smooth transition that does not result in service disruption for beneficiaries.

Customer Relationship Management Solution

Our Customer Relationship Management solution, which we have named the Customer Contact Manager (CCM) supports our goal of first call resolution by giving them the beneficiary and providers access to the experts they need.  Health Net has an Interactive Voice Response (IVR) Unit, which also has voice recognition capabilities, has been designed and programmed to be very user friendly in nature.  Customers are offered an immediate choice to speak with a customer service associate or use the intuitive self-service options.  A new way of providing customers with a method to electronically communicate with us via myTRICARE.com will be implemented for health care delivery.  We have implemented a sophisticated tool and methodology for evaluating and improving associate interactions with our customers. This solution will be up and available for calls on May 3, well in advance of health care delivery to begin servicing beneficiaries and providers.

Claims Operations

Claims Operations encompasses all areas related to claims processing and administration. Health Net partnered with PGBA for its claims adjudication function. The Claims Team's goal is to deliver an on-line real-time claims system that will provide prompt and accurate claims processing, ensure full capability to adjudicate claims and process appeals within specified performance standards, deliver a Fraud, Waste and Abuse System and Retrospective Review System and provide multiple means for providers to submit claims electronically (i.e., XPressClaim, direct submission from providers, and claims clearinghouses).  

A cross-functional team from PGBA, Health Net IT, and Operations were formed to prepare for the Health Net Systems Readiness Test, Integration Test, and Benchmark.  Health Net has worked closely with TMA and DMDC to prepare integration test plans, discuss potential risks with testing, communicate daily regarding DEERS connectivity, and prepare for benchmark.

Best Value in Health Care

The Best Value Healthcare objective area, encompasses the medical management functions: referral management, case management, transitional care, clinical quality management, demand management, and our medical director function--with appropriate associates, key decision-makers and leaders with knowledge of a broad spectrum of Health Net operations. Health Net's Best Value Teams have developed new referral and authorization requirements; partnered in the area of interface with the government in routine referral and authorization operations, collaborated with Humana and Sierra to design a plan for transitioning open referrals, authorizations and beneficiary cases to Health Net closer to the start of health care delivery, formed a work plan for achieving URAC accreditation within 18 months of health care delivery and designed the Health Net website to provide meaningful medical management and preventive health content and functionality for beneficiaries and providers for use in the new TRICARE Contract.

Transition of Beneficiaries Currently Involved in an Episode of Care

Health Net is aware of the health risks and potential problems with satisfaction and patient anxiety by DoD beneficiaries during the period of transition.  We are working with each of the outgoing contractors to identify beneficiaries who are in an episode of care.  The purchase of the outgoing contractor's networks should reduce risk to patients by ensuring continuity and decreasing the risk created by interruptions in care with their providers. We anticipate increased satisfaction and decreased anxiety about the transition into the new contract.

We have developed a mechanism for managing the current Program for Persons with Disabilities (PFPWD) benefit.  We have assigned knowledgeable dedicated staff to the program who will support the transition as the program shifts to the Extended Care Health Option (ECHO).  Health Net has collaborated with Humana and Sierra to identify beneficiaries currently managed under PFPWD.  Case conferences will be conducted with the outgoing contractors to ensure transfer of all appropriate information and a smooth transition for the beneficiaries.

Case Management

Health Net has developed a case management module that is integrated in our medical management system.  The case management module includes the case referral, evaluation, assessment, and care plan.  The assessment and care plan development utilize best practices from the Case Management Society of America and Mosby practice guidelines.  There has been interest expressed by several MTFs to use the medical management system module as a common platform for managing the case management patients.  A common platform would be beneficial for beneficiaries who receive a portion of their care in the direct care system and a portion of their care in the purchased care system allowing the case managers to have a "total view" of the patient care.

Quality of Care

The Clinical Quality Management Program monitors the quality of care and service rendered to TRICARE beneficiaries in the North Region, identifies opportunities for improvement, and ensures that interventions addressing those opportunities are implemented and are effective.

We are incorporating state-of- the-art ways to ensure patient safety, and to monitor clinical outcomes. We are also developing special programs for disease management, including those that integrate physical and behavioral health. As we enter this new region, Health Net will establish North Region baseline data regarding provider practices and once the data collection is complete, we will establish a program to bring our network providers in alignment with best practices.

As we move to the new contract, our medical management system will incorporate triggers for automated identification of potential quality issues associated with inpatient or outpatient services. Health Net's Transitional Care Program includes pre-admission counseling to prepare beneficiaries for hospitalization.  The same nurse follows the beneficiary through the hospitalization, including arranging discharge services.  When a beneficiary is discharged the nurse conducts a follow-up call to ensure discharge services were received in a timely manner and that the beneficiary understands discharge instructions and use of medications.  The nurse also verifies that there are no barriers to the patient keeping follow-up visits with their physician (for example transportation issues).  

Provider Profiling and Credentialing Issues during Transition

Provider profiling allows for the retrospective evaluation of care provided by our network providers.  Health Net actively accumulates and integrates various outcome measures to assess the appropriateness of continued provider network affiliation and uses this information for review during our biannual review of network providers.  Provider profiling activities include drug utilization, service utilization, historical record (of potential quality issues, quality issues, and other quality improvements findings), medical record audit findings, and aggregate data of selected key performance indicators.  This data will be utilized under our new contract to evaluate past performance and to identify indicators and potential problems and trends that could potentially result in adverse outcomes of care. It is our intention to direct or to educate beneficiaries so that they utilize the services of providers and facilities with the best outcomes of care for specific medical conditions.

We will continue to check for sanctions on our network providers and to query state board medical reports to look for adverse or disciplinary actions on network providers.

Health Net will continue to comply with credentials requirements to ensure that the providers are fully qualified and to protect our beneficiaries, to the degree possible, through the maintenance of credentialing standards.

Although Health Net feels that the files from the acquired networks will meet the minimum requirements set under TRICARE and URAC policies, Health Net will immediately set up a review process for any potential open adverse or disciplinary actions.  We want to ensure that the qualifications of our network providers are the best and that the potential for adverse consequences in medical practice is minimized.  

Transition and Program Challenges

Resource Sharing Conversions

Bidders for the next generation of TRICARE Contracts were told that all existing Resource Sharing Agreements would terminate at the beginning of health care delivery of the new contracts and that an amount equivalent to the current resource sharing expenditure would be transferred by the DoD to the Direct Care System. The MTFs would then use the transferred dollars to obtain the needed resources through either hiring staff or direct contracting. The health care cost we bid for Option Period 1 was based on this information, as were the administrative costs we bid for the transition and Option Periods 1 through 5.

It is imperative that all existing Resource Sharing projects that are shown to be cost-effective are fully funded going forward.  It is equally as important that the MTFs have access to this funding in a timely manner so projects can be put in place at the start of health care delivery for the new contracts.  If this is not done, we are concerned that the availability of health care resources in the MTF setting could be in jeopardy.

Provider Reimbursement

Reimbursement continues to be a concern. We are encouraged by rate increases of 1.6% in April 2003 and 1.5% in March 2004. However, we do not expect this increase to have a material impact on reimbursement concerns raised by providers; the perception is that these increases is relatively insignificant in relation to the rising costs of providing health care.

Carve-Out Contracts

Over the course of the following 10 months, three MCS contracts, retail pharmacy, TFL, and Appointing will be phase-in. It is critical to the success of this Program that parties involved, DoD and the individual contractors and fully on board and sync with each other throughout this period and continuing on in health care delivery.    We are most appreciative of the Department for establishing a summit meeting the week of March 22, 2004.  The purpose of the meeting is to gather contractors and the government to review and coordinate plans and processes for supporting TRICARE beneficiaries and providers during contract transitions. This is a great step in the right direction.

Other Items
 

Veteran's Affairs/DoD Sharing and Health Net

Health Net recognized a substantial opportunity for the Government to optimize health care delivery for veterans and for the military dependent population several years ago.  Health Net has 15 years of experience in assisting DoD/TRICARE in achieving their program objectives.  Health Net also has 7 years of experience with VA health programs and currently holds 145 VA contracts across the nation.

We have implemented several best practices from our DoD/TRICARE experience across VA Integrated Service Networks (VISN) and medical centers.  As a direct result of applying these best practices in the VA, we have saved or recovered over $60 million dollars since 1999 that would have otherwise been expended out of VA health care operating budgets.

Specifically, Health Net has leveraged its managed care program expertise to support VA services in the following areas:

• We established a national civilian provider network for preferred pricing that obtains discounts for non-VA claims in VA's Fee Basis Program;

• We have audited and recovered DRG based claim dollars paid to civilian institutions inappropriately due to improper coding;

• We have successfully contracted with VA Medical Centers as network providers for the delivery of health care services to TRICARE beneficiaries on a space-available basis, and;

• We have worked closely with VISNs and VA Medical Centers in our TRICARE service regions to educate them about TRICARE Program elements and how to efficiently submit claims under the TRICARE Program. This has eased the administrative issues and encouraged the VA's participation in TRICARE.

Health Net works collaboratively with each VA Medical Center in the TRICARE Regions we serve to ensure the TRICARE Program participation runs smoothly, responds to service issues and encourages the VA providers to see TRICARE Program beneficiaries wherever space is available.  We will continue this collaboration effort as we move to the North. 

In the last year, over $5 million in health care services have been provided to TRICARE beneficiaries in the three MCS Contracts we administer.  This provides the next most efficient use of government medical resources when DoD military treatment facilities cannot accommodate the beneficiaries' service needs.

In summary, Health Net has taken the position that these two vital government health care systems can benefit from one another.  There are challenges in funding mechanisms and in differing missions between the two systems but Health Net, as a principle contractor for both systems, serves an important role to encourage and advance the mission of each system.  We continue to look for ways to build on our current support of VA and DoD, and to realize the many benefits of sharing medical assets across the two systems.

Security of TRICARE Beneficiary Information

Introduction

Health Net clearly understands the vital nature of keeping sensitive information secure.  Over the past 15 years of conducting TRICARE business Health Net has worked in conjunction with the DoD and the TRICARE Management Activity (TMA) to implement physical and security controls to protect systems and sensitive information.

Health Net has designed its organization, culture, and policies and procedures around corporate accountability, integrity, and safeguarding sensitive information that has been entrusted to us.  We protect information confidentiality, integrity and availability regardless of media -- electronic or paper.

All of Health Net's sites are safe from physical attacks and unauthorized intrusion through the use of closed circuit TV, roving on-site security personnel, and card-key systems.

Health Net is fully compliant with DoD's Personal Security Program, requiring all associates to undergo a government conducted background investigation.  We regularly perform vulnerability assessments and system scans to determine actual weaknesses of physical and information systems controls.

Our data center employs safeguards to ensure the complete protection of our electronic data assets including:

• closed circuit TV cameras;

• card key system;

• two-factor authentication to access secured areas;

• alarmed exit doors;

• locked gate to campus during non-business hours;

• roving security personnel on site 24 hours a day, 7 days a week;

• Disaster Recovery Plan and a full, hot site back up site of our data center;

• fully encrypted wide area network protecting data over transmission lines; and,

• firewalls and Intrusion Detection System Probes preventing unauthorized electronic access to our network, servers, and data.

Health Net is moving rapidly toward full compliance with two significant security landmarks: DoD Information Technology Security Certification and Accreditation Process (DITSCAP), and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). 

DITSCAP Process

As part of our TRICARE contractual requirements, we are working in collaboration with TMA to implement DITSCAP.  The purpose of DITSCAP is to demonstrate the trust level of systems and processes that manipulate or store sensitive DoD information.  The outcome of DITSCAP is a certification issued to Health Net by DoD attesting that all systems and processes operate at a Mission Assurance Category III (MAC III) level of trust.  Health Net received an Interim Approval to Operate (IATO) at a MAC III level of trust in  September 2003 under its existing contracts.  We are currently working with TMA to receive a Mission Assurance Category III (MAC III) level of trust on a full up Approval To Operate (ATO) certification under the North Contract.

HIPAA

To ensure full and timely compliance with all aspects of HIPAA, Health Net has completed developing and placing automated systems that will enable the transmission of information in the manner prescribed by the Transactions and Code Sets Final Rule.  Fulfillment of the Privacy Final Rule was accomplished in 2003 and is on going, to ensure that all necessary agreements are in place, protected health information is identified and processed appropriately, and that individually identifiable health information is stored and accessed in a manner consistent with law.  Health Net is currently pursuing implementation and completion of the Security Final Rule and will be complete with security processes and safeguards by start of health care delivery in the North.

Closing Comments

Through the years, our TRICARE efforts have been made easier by the collaborative efforts of our partners in the military and the government.  We have been fortunate to forge relationships that we hope will continue for years to come.

Our job has not been just a job - it has been a source of pride for all of us at Health Net.  In times of peace or conflict, from Desert Storm through 9/11 to Operation Iraqi Freedom - we are honored to play a role in supporting our country's efforts.

We look at our TRICARE programs in Regions 6, 9, 10, 11, 12 and Alaska today and voice a strong "mission accomplished."  We leave these regions where we have worked diligently to support the program, buoyed by the knowledge that TriWest and Humana will continue to service and build upon the good things we have developed.

We move forward knowing that, just as the success of today's military is built upon the rich heritage found in the North Region, so too will we build upon our rich heritage of service to TRICARE in this region.

Thank you again Mr. Chairman for the opportunity to express my views of the TRICARE Program.