and generally conforms with accepted actuarial practice. As of March 1997, the most recent available CMAC rate update, approximately 80 percent of the national CMAC rates were at the same level as Medicare and about 20 percent were higher than Medicare because the transition for these rates is not yet complete. Only the rates for 61 of about 7,000 procedures—less than 1 percent—were below the Medicare level of payment. We found that the selected high-volume CMAC rates at each of the four locations were generally consistent with Medicare rates. During the initial CMAC transition process to the Medicare level of payment, some physicians expressed concern about the low level of payment for certain obstetric and pediatric procedures, but payment levels for these procedures have since been addressed by DOD and HHS’ Health Care Financing Administration (HCFA). DOD did not, however, adjust pediatric rates. Physician Complaints Now Focused on Discounted CMAC Rates

Because most CMAC rates are equivalent to Medicare rates, the discounted CMAC rates that TRICARE network physicians agree to accept are typically below the Medicare level of payment. Because of this, some physicians told us that they would not join the TRICARE network but would continue to see military beneficiaries under the Standard option. In the four locations, we found that the differences in the discounted CMAC rates physicians are willing to accept depend largely upon local health care market conditions such as the degree of HMO penetration as well as the dependence of the local physicians on the military beneficiary population. And while these concerns resulted in some physicians dropping out of the network or not joining, these physicians told us that they continue to treat military beneficiaries as nonnetwork physicians under the Standard option. DOD and MCSC officials acknowledged these complaints and told us they are in the process of addressing them. DOD and MCSC officials told us they were aware of only a very small number of balance billing infractions—all of which were easily resolved. Conclusions

By lowering CMAC rates to levels comparable to rates paid under the Medicare program, DOD will save nearly three-quarters of a billion dollars in fiscal year 1998 in health care expenditures. And throughout the nearly complete transition process, DOD has appropriately set and adjusted CMAC rates in compliance with statutory requirements using a methodology that also generally complies with accepted actuarial practice. While most of the physicians we spoke with continue to treat military beneficiaries, addressing physicians’ concerns is crucial to the development and maintenance of TRICARE networks. Although the MCSCs attempt to educate beneficiaries on balance billing limits, this information could be easily communicated by following Medicare’s practice of including balance billing information on explanation of benefits statements sent to both the beneficiaries and physicians. Recommendations

To improve the administration of the TRICARE program, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to require MCSCs to provide to physicians written or published locality-specific fee schedules after each yearly CMAC update to help eliminate confusion about CMAC reimbursement rate amounts and require MCSCs to notify beneficiaries and physicians of balance billing limits on the explanation of benefits statements for all TRICARE Standard claims submitted by nonparticipating physicians. We also met with officials at HCFA to determine how they enforce Medicare’s balance billing limits.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO examined: (1) whether the Department of Defense's (DOD) methodology for setting the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) maximum allowable charge (CMAC) rates complies with statutory requirements and how current CMAC rates compare with Medicare rates for similar services; (2) the basis for physicians' concerns about CMAC rates and how these concerns affect physicians' willingness to treat military beneficiaries; (3) the basis for other concerns physicians have about TRICARE that could also affect their willingness to treat military beneficiaries; and (4) how balance billing limits are being enforced.

What GAO Found

GAO noted that: (1) the methodology used by DOD to transition CMAC rates to the Medicare level of payment complies with statutory requirements and generally conforms with accepted actuarial practice; (2) these adjustments will result in DOD saving about three-quarters of a billion dollars in fiscal year 1998 in health care expenditures; (3) as of the most recent available CMAC rate adjustment in March 1997, 80 percent of CMAC rates nationwide were at the same level as Medicare, with about 20 percent higher and less than 1 percent below the Medicare level of payment; (4) the CMAC rates at the four locations GAO selected were generally consistent with Medicare rates; (5) while physicians' initial concerns about low obstetric and pediatric rates have been addressed by DOD, current physician complaints about reimbursement levels are focused on the discounted CMAC rates paid to network physicians under DOD's TRICARE program; (6) because most CMAC rates are now equivalent to Medicare rates, the discounted CMAC rates that TRICARE network physicians agree to accept are typically below the Medicare level of payment; (7) some physicians told GAO that they considered the discounts unacceptable, and they would not join the TRICARE network but would continue to treat military beneficiaries as nonnetwork physicians; (8) the discount rates physicians were willing to accept in the four locations were largely dependent on local health care market factors such as the degree of health maintenance organization penetration and the dependence of local physicians on the military beneficiary population; (9) physicians GAO met with also expressed concerns about administrative hassles, which contributed to their frustration with the TRICARE program; (10) in many cases, physicians said that while they would be willing to accept discounted CMAC rates, the administrative impediments provided significant disincentives to joining the TRICARE network; (11) DOD and managed care support contractors (MCSC) officials acknowledged these complaints and are making efforts to address them and alleviate physicians' concerns; (12) DOD and MCSC officials told GAO that they were aware of only a very small number of balance billing infractions--all of which had been easily resolved; (13) while the MCSCs attempt to educate beneficiaries about balance billing limits, the explanation of benefits statement does not include information on the balance billing limits; and (14) Medicare, which has the same balance billing limit, sends notice of balance billing limitations on the statements it provides to beneficiaries and physicians.