The six designated providers offer TRICARE Prime to eligible  beneficiaries through civilian provider networks in their service areas. The USFHP Duplicates the Role of the MCSCs in offering the TRICARE Prime Option and is not Integrated with the Rest of the MHS

The USFHP’s role within the current MHS is duplicative because it offers  military beneficiaries the same TRICARE Prime benefit that is offered by  the MCSCs across much of the same geographic service areas and  through many of the same providers. There is also significant overlap in the geographic service areas in which  the USFHP designated providers and the MCSCs offer TRICARE Prime. As of October 1, 2013, four of the six USFHP designated providers had  more than 80 percent of their service area zip codes overlapping with the   See table 1 for the percent of USFHP zip  MCSCs’ Prime Service Areas. codes included in areas where the MCSCs also offer TRICARE Prime. The MCSCs currently serve over 4.5 million Prime  enrollees—therefore, adding 134,000 USFHP enrollees would not appear  to be a significant burden, according to MCSC officials. All three MCSCs  told us that they would likely have the capacity and capability to provide  TRICARE coverage to all of the current USFHP enrollees, including the  TRICARE Prime option or other options, as appropriate, depending on  the enrollees’ locations. The duplication and related overlap between the USFHP and the MCSCs’  TRICARE Prime option has been longstanding in part because the  program’s role has not been reassessed since TRICARE was  implemented in the 1990s. DOD  officials told us that there is not a function that the USFHP designated  providers serve that the MCSCs could not perform. The USFHP Limits DOD’s Ability to Maximize Use of Its Direct Care System Because it Operates Independently of the Integrated MHS

One of the goals of the MHS is to maximize use of the direct care  system’s MTFs, a goal most recently articulated in DOD’s budget request  for fiscal year 2015. Unlike Prime beneficiaries enrolled with  the MCSCs, USFHP enrollees are generally precluded from receiving  care at MTFs due to the program’s fixed-price capitation payment  structure that is intended to cover all enrollees’ health care costs. The USFHP’s Duplicative Role Results in Added Costs and Inefficiencies for DOD

Because the USFHP’s role of offering TRICARE Prime is duplicative of  the role played by the MCSCs, DOD has incurred added costs by paying  the designated providers to simultaneously administer the same benefit  as the MCSCs. DOD Incurs Added Costs by Paying the Designated Providers to Simultaneously Administer the Same Benefit as the MCSCs

Because the USFHP is a statutorily required component of the MHS,  DOD must pay the USFHP designated providers to administer the same  benefit to the same population of eligible beneficiaries in many of the  same locations as the MCSCs. Although DOD would incur health care  costs for the USFHP enrollees regardless of with whom they are enrolled,  DOD must also pay administrative costs and profits to two different  groups of contractors for providing the same TRICARE Prime benefit. However, our estimate may not represent the total  administrative costs and profit realized since DOD’s knowledge of the  actual cost components underlying these negotiated payments is  limited.requirement to share certified cost or pricing data, DOD has requested  that they share uncertified cost or pricing data. However, according to  DOD officials, the designated providers have been unwilling to do so  when asked. Thus, DOD does not know how much of the approximately  $1.1 billion it pays the USFHP designated providers annually goes toward  their actual administrative costs and profit versus the cost of health care  services for USFHP enrollees. Managing the USFHP is an Inefficient Use of DOD’s Resources

In addition to the costs associated with the USFHP designated providers’  capitation payments and support contracts, DOD must expend resources  managing various aspects of the USFHP. These annual payment negotiations are not  necessary for the managed care support contracts, which are structured  differently. Eliminating this  statutorily required program would not only eliminate unnecessary costs  and inefficiencies but would also free up departmental resources that  could be better used to manage and oversee the TRICARE program. Matter for Congressional Consideration

To eliminate unnecessary program duplication and to achieve increased  efficiencies and potential savings within the integrated MHS, Congress  should terminate the Secretary of Defense’s authority to contract with the  USFHP designated providers in a manner consistent with a reasonable  transition of affected USFHP enrollees into TRICARE’s regional managed  care program or other health care programs, as appropriate. DOD also  reiterated our statement that if the USFHP were to be eliminated, it will be  important to make provisions to carefully transition USFHP enrollees to  other health care programs. In its response, DOD confirmed that our factual determinations about the  USFHP are correct.
Why GAO Did This Study

DOD provides health care to about 9.6 million eligible beneficiaries through its TRICARE program. The department contracts with MCSCs to administer TRICARE's benefit options in three regions across the United States. Separately, DOD contracts with six USFHP designated providers to offer TRICARE Prime—the managed care option—to enrollees in certain locations across the country.
Senate Report 112-173, which accompanied a version of the National Defense Authorization Act for Fiscal Year 2013, mandated that GAO review DOD's health care contracts, citing concerns with the growing costs of these contracts, including the USFHP. For this report, GAO examined (1) the role of the USFHP within the MHS, and (2) the extent to which the USFHP affects DOD's health care costs. GAO analyzed information about the USFHP and the MCSCs, reviewed available USFHP cost data, and interviewed officials from DOD, the designated providers, and the MCSCs.

What GAO Found

The role of the US Family Health Plan (USFHP) within the Department of Defense's (DOD) current military health system (MHS) is duplicative because it offers military beneficiaries the same TRICARE Prime benefit that is offered by the regional TRICARE managed care support contractors (MCSC). The USFHP is an association of six health care providers, referred to as designated providers, which took ownership and control of U.S. Public Health Service hospitals in 1982 when Congress enacted legislation that made these facilities part of DOD's health care system. During the implementation of TRICARE in the 1990s, Congress required the designated providers to offer the TRICARE Prime benefit to their enrollees. While the USFHP is a relatively small program—approximately 134,000 enrollees—there is significant overlap with the MCSCs in several key areas, including benefits, geographic service areas, and provider networks. For example, four of the six USFHP designated providers have more than 80 percent of their service area zip codes included in areas where the MCSCs offer TRICARE Prime. Furthermore, the USFHP remains a distinct statutory program that is not integrated with the rest of the MHS. This limits DOD's ability to increase efficiency by maximizing the use of its direct care system of military treatment facilities (MTF), which USFHP enrollees are generally precluded from using because the USFHP's payment structure is intended to cover all enrollees' health care costs. The role of the USFHP has not been reassessed since TRICARE was implemented in the 1990s. However, DOD officials told us that there is not a function that the USFHP designated providers serve that the MCSCs could not perform. Furthermore, officials from all three MCSCs—which together serve over 4.5 million Prime enrollees—said that they would likely have the capacity and capability to provide TRICARE coverage to all current USFHP enrollees, if needed.
Because the USFHP's role of offering TRICARE Prime is duplicative of the role of the MCSCs, DOD has incurred added costs and inefficiencies. Although DOD would incur health care costs for the USFHP enrollees regardless of with whom they are enrolled, DOD pays administrative costs and profits to two different groups of contractors for providing the same TRICARE Prime benefit to the same population of eligible beneficiaries in many of the same areas. However, outside of the negotiated payment amounts, no one knows the designated providers' actual costs for administering the program since the USFHP contracts are characterized in statute as commercial item contracts. This means that the designated providers are exempt from sharing certified cost or pricing data with DOD, and they have been unwilling to share uncertified cost or pricing data when requested. As a result, DOD does not know how much of the approximately $1.1 billion it pays the USFHP designated providers annually actually goes toward their administrative costs and profit versus the cost of health care services. DOD also incurs other expenses for the USFHP through support contracts, including a $21 million data support contract, and through the management of various aspects of the program. Eliminating this statutorily required program would not only eliminate unnecessary costs and inefficiencies, but would also free up departmental resources that could be better used to manage other aspects of the TRICARE program.

What GAO Recommends

Congress should terminate DOD's authority to contract with the USFHP designated providers in a manner consistent with a reasonable transition of affected USFHP enrollees into TRICARE's regional managed care program or other health care programs as appropriate. DOD confirmed that GAO's factual determinations about the USFHP are correct and agreed that this program is duplicative and results in unnecessary costs and other inefficiencies. DOD reiterated the importance of carefully transitioning USFHP enrollees to other health plans if the USFHP were eliminated.