This reform effort comprises seven overarching  goals: consolidate functions (shared services) common to DOD; deliver more-integrated health care in areas with more than one establish more-standardized processes; more-closely align financial incentives with health and readiness match other resources with missions; deliver more primary care and other health services; and better coordinate care over time and across treatment settings. As a result,  in March 2013, the Assistant Secretary of Defense for Health Affairs  chartered the MHS Governance Transition Organization to provide  oversight, management, and support for the implementation of MHS  governance reforms. The formation of this MHS Governance Transition  Organization addresses an issue we previously reported on—that DOD  had not formed an overarching team to manage the implementation of the  2006 attempt to improve the department’s medical governance structure. DOD Does Not Have an Accurate Baseline Assessment of Current Staffing to Determine Potential Savings and Future Staffing Needs of the DHA

As we reported in November 2013, DOD has not conducted an accurate  baseline assessment of the headquarters personnel currently working in  the MHS—that is, personnel working at each military service’s  headquarters and at the Office of the Secretary of Defense. In its September 2011 analysis of options to reform the MHS, DOD  identified anticipated personnel savings as part of the rationale for the  reform effort and estimated a resulting estimated annual personnel cost  savings of $46.5 million. In the final submission which we reviewed for this statement, DOD did not  include a baseline assessment of the number of personnel currently  working in the MHS headquarters across the services and the Office of  the Secretary of Defense, nor did it include an estimate of the staffing  needs once the DHA is fully operational in 2015. Instead, DOD reported  that the DHA would include 1,941 military and civilian personnel as of its  initial operating capability on October 1, 2013. According to GAO’s Business  Process Reengineering Assessment Guide, an initial business case is a  high-level document aimed at convincing customers and stakeholders  that reengineering the selected business process is the appropriate  means for achieving performance and cost-savings goals. In addition, business-case analyses  should demonstrate the sensitivity of the outcome to changes in  assumptions, with a focus on the dominant benefit and cost elements and  the areas of greatest uncertainty. DOD’s analysis did not assess the risk that  estimated implementation costs may increase. In our November 2013 report, we recommended that DOD develop a  more thorough explanation of the potential sources of cost savings from  the implementation of its shared-services projects and monitor the cost of  the implementation process, and DOD concurred with our  recommendations.submission did not provide additional information concerning the potential  sources of cost savings, nor did it clarify its plan to monitor  implementation costs. In February 2014, a DOD representative told us  that DOD has developed a process for leadership to monitor  implementation costs, and we plan to review DOD’s process to determine  if it addresses our recommendation. DOD’s third implementation plan  submission contained additional timeline activities for its reform goal  concerning the implementation of shared services, with milestones  leading up to each shared services’ initial operating capability. Specifically, DOD did not develop explanations for how each  measure relates to the goals of the reform effort; did not define the  specific measure to be developed; did not provide a baseline assessment  of the current performance that is to be measured; and, most importantly,  did not identify quantifiable targets for assessing the progress of each  reform goal. In our November 2013 report, we recommended that DOD provide more  detailed information on its performance measures—specifically, that DOD  develop and present to Congress measures that are clear, quantifiable,  objective, and include a baseline assessment of current performance.the third submission of its implementation plan, DOD provided some  additional information, such as baselines and performance targets, for the  performance measures under two of its seven reform goals. Fully developed performance measures are key to  senior leaders’ ability to assess if DOD’s reform effort is achieving its  goals or if corrective action is required. Finally, the completion of a set of fully developed performance  measures across all seven of DOD’s stated goals for the DHA would  ensure that DOD’s senior leaders and other decision makers have the  necessary information to assess DOD’s progress in creating a more cost- effective and integrated MHS. Related GAO Products

Defense Health Care Reform: Additional Implementation Details Would  Increase Transparency of DOD’s Plans and Enhance Accountability.
Why GAO Did This Study

DOD’s MHS costs almost $50 billion annually and is expected to grow to $70 billion by 2028. The MHS governance structure has been the subject of many studies, some recommending major changes. In 2006, DOD considered potential governance structure changes but left its existing structure in place, approving instead a shared-services directorate to consolidate common MHS functions (e.g., shared information-technology services) that ultimately was never developed. In 2012, DOD announced the creation of the DHA by October 1, 2013, with seven main goals: (1) consolidate functions (shared services) common to DOD, (2) deliver more-integrated health care in areas with more than one military service, (3) establish more-standardized processes, (4) more-closely align financial incentives with health and readiness outcomes, (5) match other resources with missions, (6) deliver more primary care and other health services, and (7) better coordinate care over time and across treatment settings. Section 731 of the National Defense Authorization Act for Fiscal Year 2013 required DOD to provide three submissions in March, June, and September 2013, detailing its plan to reform the MHS.
This testimony addresses the additional actions that would increase transparency and enhance accountability of DOD’s reform plans. It is based primarily on (1) GAO’s November 2013 report which assessed DOD’s first two submissions of its reform plans to Congress and (2) selected updates. For the updates, GAO analyzed DOD’s third reform plan and interviewed a DOD representative.

What GAO Found

Department of Defense (DOD) senior leadership has demonstrated a commitment to oversee implementation of its military health system’s (MHS) reform and has taken a number of actions to enhance the reform efforts. For example, in March 2013, DOD chartered the MHS Governance Transition Organization to provide oversight, management, and support for the implementation. This entity is chartered to exist until October 2015, when the Defense Health Agency (DHA) is expected to reach full operating capability. Formation of this entity addresses an issue GAO reported on in April 2012—that DOD did not form such a team to oversee its 2006 MHS reform effort.
GAO’s November 2013 report identified several areas in DOD’s implementation plan where sustained senior leadership attention is needed to help ensure the reform achieves its goals including:
Undetermined staffing requirements : DOD did not have the data to determine how the creation of the DHA will affect the total number of MHS headquarters staff because it had not conducted an accurate baseline assessment of current staffing levels. Notwithstanding, using data that service officials later believed were inaccurate, in 2011, DOD identified anticipated annual personnel savings of $46.5 million as part of the rationale for creating the DHA.
Unclear cost estimates : DOD’s cost savings estimates were missing key details such as the source of the savings. DOD aggregated the separate functions of its shared services, which obscures the size and cost of planned efficiencies for each function. A business case analysis requires detailed information to convince customers and stakeholders that the selected business process is the appropriate means for achieving performance. In addition, business-case analyses should demonstrate the sensitivity of the outcome to changes in assumptions. However, DOD did not assess the risk that implementation costs could increase.
Incomplete performance measures : DOD did not develop explanations for how each measure relates to the goals of the reform effort, did not define the specific measure to be developed; did not provide a baseline assessment of the current performance that is to be measured; and, most importantly, did not identify quantifiable targets for assessing progress. In its third submission, DOD provided some additional information, but did not provide fully developed performance measures for any of its seven reform goals.
DOD concurred with all of GAO’s recommendations, including: (1) develop a baseline assessment of the number of personnel currently working within the MHS headquarters and an estimate for the DHA at full operating capability; (2) develop a more thorough explanation of the potential sources of cost savings from DOD’s implementation of shared services; and (3) develop performance measures that are clear, quantifiable, objective, and include a baseline assessment of current performance. In February 2014, a DOD representative said that DOD has taken action to address the recommendations, but it has not completed implementation. GAO continues to believe that it is imperative for DOD to complete these actions so decision makers will have complete information to gauge reform progress.