1). Significant Differences Between Budget Allocations and Obligations

The Congress appropriated $48.9 billion for DHP O&M expenses between fiscal years 1994 and 1998. During budget execution, DOD obligated about $4.8 billion differently—as either increases or decreases—from its budget allocations for the various subactivities (see table 3). Between 1994 and 1998, DOD allocated $21.2 billion from the final DHP appropriation for purchased care but obligated only $19.1 billion, allowing DOD to reallocate $2.0 billion into such areas as direct patient care, information management, and base operations. At the program element level, the largest adjustments within the purchased care subactivity occurred between 1994 and 1996, when DOD obligated $1.4 billion less than the budget allocation for the CHAMPUS program element (see table I.4 and fig. 3). Because of the delays in starting up these contracts, most of the unobligated MCS contract funds were used to defray higher than anticipated CHAMPUS program obligations. DHP Obligations Differed From Budget Allocations for Several Reasons

According to DOD officials, between 1994 and 1998, DOD-wide budget pressures and major program changes—such as downsizing and the rollout of TRICARE managed care reforms—made it difficult to estimate and allocate resources between direct care and purchased care budgets. DOD officials cited several interrelated reasons why DHP obligations differed from DOD’s budget allocations between fiscal years 1994 and 1998. Decision to Fully Fund Purchased Care Left Less for Other Subactivities

TMA, Health Affairs, and service budget officials made various internal budget policy choices that included a DHP budget strategy to fully fund purchased care activities within available funding levels. This strategy, coupled with general budget pressures, left less money with which to budget direct care and other DHP subactivity requirements (such as information management and base operations). For fiscal years 1997 to 1998, DOD has estimated that CMAC saved $1.5 billion in CHAMPUS and TRICARE contract costs. Thus, funding changes during budget execution are nearly inevitable. Notification or Budget Execution Data Would Enhance Oversight of DHP Funding Changes

The movement of DHP funds between subactivities does not require prior congressional notification or approval. As a result, sizeable funding changes have occurred without specific notification. Conclusions

DOD officials expect future DHP obligations to track more closely with budget requests and allocations, while acknowledging that some movement of funds is inevitable given the lack of a universally enrolled beneficiary population for direct and purchased care. These and other details of the notification procedure could be worked out between congressional committees and DOD to further ensure that DOD’s ability to obligate funds for the timely delivery of health care services was not impaired.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the apparent discrepancies between the Department of Defense's (DOD) budget allocations and the actual obligations for direct and purchased care, focusing on: (1) the extent to which the Defense Health Program (DHP) obligations have differed from DOD's budget allocations; (2) the reasons for any such differences; and (3) whether congressional oversight of DHP funding changes could be enhanced if DOD provided notification or budget execution data.

What GAO Found

GAO noted that: (1) between fiscal years 1994 and 1998, Congress appropriated $48.9 billion for DHP operations and maintenance (O&M) expenses; (2) during that period, DHP obligations at the subactivity level, particularly for direct and purchased care, differed in significant ways from DOD's budget allocations; (3) in total, about $4.8 billion was obligated differently--as either increases to or decreases from the budget allocations DOD had developed for the 7 DHP subactivities; (4) these funding changes occurred because of internal DOD policy choices and other major program changes; (5) according to DOD, its strategy was to fully fund purchased care activities within available funding levels; (6) this strategy left less to budget for direct care and other DHP subactivities; (7) TRICARE Management Activity officials also told GAO that because the DHP has both direct and purchased care components, whereby many beneficiaries can access either system to obtain health care, it is difficult to reliably estimate annual demand and costs for each component; (8) between 1994 and 1996, purchased care obligations were $1.9 billion less than allocated because of faulty physician payment rate and actuarial assumptions; (9) between 1994 and 1998, direct patient care obligations amounted to $1 billion more than DOD had allocated--during a period of base closures and military treatment facility downsizing--largely because DOD understated estimated direct care requirements; (10) also, between 1996 and 1998, DOD overestimated TRICARE managed care support (MCS) contract costs, believing that contract award prices would be higher and implementation would begin sooner than what occurred; (11) thus, most of the unobligated MCS contract funds were used to defray higher than anticipated Civilian Health and Medical Program of the Uniformed Services obligations; (12) the movement of DHP funds from one subactivity to another does not require prior congressional notification or approval; (13) as a result, these sizable funding changes have generally occurred without congressional awareness; (14) now that the MCS contracts are implemented nationwide, DOD officials expect future DHP obligations to track more closely with budget allocations; and (15) current law and regulations will continue to allow DOD the latitude to move funds between subactivities with little or not congressional oversight.