1073 note). But, as previously indicated, savings to date show that not enough is being done to reach DOD’s projected resource sharing savings levels. For the future, DOD is planning far broader changes in MTF budgeting and support contracting, which are expected to further reduce reliance on resource sharing. One result of this approach will be to reduce reliance on resource sharing to lower support contract costs; but it also adds new challenges and does not eliminate, and may even exacerbate, resource sharing problems. More Contracting and Related Budgeting Changes Planned, With Broader Implications

For the future, DOD plans other changes to simplify TRICARE contracting and MTF budgeting. No final decisions have been made yet. DOD Views Resource Sharing as One of Several Cost-Saving Features

DOD officials acknowledged that resource sharing has not achieved the expected savings, but told us that lower than expected contract award amounts have led to more than $2 billion in other savings. While assessing TRICARE’s overall cost-effectiveness was beyond our review’s scope, there are reasons at this time to question the currency and analytical completeness of DOD’s savings claims. We reported that DOD lacked a formal methodology for developing the estimates, and we concluded overall that future health care costs likely would be greater. Thus, we support DOD’s plans to undertake a more current and complete cost analysis of MTF direct and contractor-provided care, based on recent program data, to bottom-line TRICARE’s current and future-year cost-effectiveness. Conclusions

At their present results levels, for the existing contracts, DOD and the support contractor will achieve only about 5 percent of the expected $700 million in new savings, potentially causing shared financial losses and higher TRICARE costs. DOD’s policies, processes, and tools for use at the local level as well as the degree of DOD and contractor collaboration have not yet been sufficient to effectively resolve the approach’s obstacles. Recommendations

We recommend that the Secretary of Defense direct the Assistant Secretary of Defense (Health Affairs) to determine whether any further resource sharing savings remain under the current contracts and, as appropriate, consummate promising agreements while seeking other mutually acceptable alternatives to resource sharing; determine, to the extent the new contracts with revised financing use resource sharing, whether any such agreements are available and, as appropriate, enter promising agreements while seeking effective alternatives to resource sharing; and incorporate, while planning for and implementing the next wave of MTF financing and contract management initiatives, such resource sharing lessons learned as the need for coherent, timely policies; clearly understood procedures; mutually beneficial incentives; and effective collaboration. As we said in the report, the approaches are still being defined and are yet to be tested. We reviewed DOD and contractor projections of resource sharing costs and savings, TRICARE policies and guidance, and various efforts by DOD to promote the overall resource sharing effort. A variety of reports may be useful in this regard. MTF Operations Study. For example, “This project is intended to expand Family Practice services within the hospital. These include (1) the type of RSA, (2) whether the agreement converts an inpatient partnership agreement that previously existed, (3) the option period (year) covered by the proposed agreement, (4) the number of outpatient visits or inpatient admissions enabled by the agreement, (5) the expected government risk-sharing responsibility percentage, (6) the estimated volume trade-off factor used to estimate CHAMPUS avoidance savings, (7) the estimated average government cost per unit for admissions and/or outpatient visits avoided in CHAMPUS for care covered by the agreement, (8) the expected contractor expenditure under the agreement, (9) the projected MTF marginal expenditures, (10) the contractor resource sharing workload credit assumed in the analysis, (11) the sum of the projected resource sharing expenditures for those agreements approved for the lead agent region as a whole, and (12) the expected MTF payment for the contractor’s costs and the MTF’s marginal costs if the resource is acquired under task order resource support rather than resource sharing.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) use of support contracts to help deliver health care and to control costs, focusing on: (1) whether resource sharing savings are meeting DOD's projections and thus helping control TRICARE costs; (2) what problems DOD might be encountering in pursuing resource sharing; and (3) actions and alternatives pursued by DOD to overcome those problems. GAO also considered the implications of resource sharing within the broader context of TRICARE's overall cost-effectiveness.

What GAO Found

GAO noted that: (1) DOD and the contractors have made agreements likely to save about 5 percent of DOD's overall resource sharing savings goals; (2) new agreements are being considered, but neither DOD nor the contractors are confident that pending agreements will be reached or that further cost savings can be attained; (3) because resulting TRICARE contract costs may be greater than anticipated, both parties may experience related financial losses; (4) problems impeding progress on resource sharing agreements and the related savings have included lack of clear program policies and priorities, uncertainty about cost effects on military hospitals, lack of financial rewards for the hospitals entering into such agreements, and changes in military hospital capacities after contractors developed bids; (5) in response, DOD has revised policies, improved training and analytical tools, and taken other steps to promote resource training under the contracts, but to date, these efforts have not been sufficient to bring needed results; (6) for the last two contracts, DOD is applying a revised financing approach that includes resource sharing but at a reduced level; (7) the new approach allocates more funds to the military hospitals and less to the contractors, enabling the hospitals to directly acquire and use outside resources rather than use resource sharing with the contractor; (8) how the military hospitals, other sources, and contractors interact under the new approach is still being defined and has not been tested; resource sharing problems will not be automatically eliminated and may be exacerbated when used in combination with revised financing; (9) for the future, DOD plans even broader changes intended to simplify military hospital budgeting and support contract operations; (10) while the military hospitals and contractors could still use resource sharing, it no longer would be the basis for projecting major savings and lowering bids at the contract's outset; (11) DOD officials acknowledged their resource sharing savings problems but told GAO that lower than expected contract award prices have led to over $2 billion in unexpected, offsetting savings; (12) while TRICARE's overall cost-effectiveness was beyond GAO's review scope, there are reasons to question the currency and analytical completeness of DOD's preliminary savings claims; and (13) GAO supports DOD's current plans to undertake a detailed analysis, based on more up-to-date cost data and estimates, of TRICARE's overall cost-effectiveness.