DOD’s Preferred Option Generally Retains Command Structures and Includes a Shared Service Concept

DOD’s preferred option would create a defense health agency that would  assume the responsibility for shared services in the MHS with military  hospitals remaining under the control of the services while other potential  options represent larger scale changes. In addition, DOD’s preferred  option would include implementing a shared services concept, which was  common to all of its governance options; however, DOD did not develop a  business case analysis that would provide a data-driven rationale for  implementing the concept. DOD Did Not Present a Business Case Analysis for Its Shared Services Concept

DOD did not present a business case analysis for proceeding with its  shared services concept common to all of the proposed governance  structures, including an estimate of costs to merge shared services  functions, operational savings to be accrued, or the likely timeframe in  which this service consolidation would achieve savings. At the time, we recommended that DOD needed to  demonstrate a sound business case, including an analysis of benefits,  costs, and risks, for proceeding with its seven initiatives, and DOD  concurred with our recommendation. this concept, it did not estimate potential savings from consolidating  common services. Further, DOD has not developed a business  case analysis for its shared services concept since it was first proposed in  2006. Task Force officials stated that the internal 90-day deadline required by  the Deputy Secretary of Defense for the Task Force to complete its report  did not allow for a detailed analysis of implementation costs or a more  thorough review of possible cost savings, and that this time period also  limited the practicality of more detailed analysis. However, the National  Defense Authorization Act for Fiscal Year 2012, which required a report  on MHS governance options to be submitted to the congressional  defense committees, was passed approximately 3 months after the Task  Force completed its review and contained no specific deadline for DOD to  submit its report. However, DOD could have conducted additional analysis before  submitting its report to the congressional defense committees. DOD Limited Its Assessment of the Options’ Strengths and Weaknesses to a Qualitative Process

DOD used a qualitative process to support its assessment of the  strengths and weaknesses of the 13 potential governance options  presented in its report, but did not balance this support with quantitative  data. DOD’s Assessment Gathered Significant Qualitative Information from Internal Stakeholders, but Did Not Provide Support for the Quantitative Elements Included in Its Criteria

DOD used a deliberative and qualitative approach to assess the strengths  and weaknesses of the 13 potential governance structures presented in  its report that included developing and applying criteria to each of the 13   In establishing the MHS review, the  governance options it developed.Deputy Secretary of Defense prescribed that the review should assess  potential governance options based on their fulfillment of the following  criteria:
Provision of high-quality, integrated medical care for servicemembers
Maintenance of a trained and ready deployable medical force to  support combatant commanders;
Achievement of significant cost-savings through, for example,  elimination of redundancies, increased interoperability, and other  means of promoting cost-efficient delivery of care. Recommendations for Executive Action

To provide decision makers with more complete information on the total  cost impact of the various governance structures to help determine the  best way forward, we recommend that the Secretary of Defense direct the  Assistant Secretary of Defense (Health Affairs) to:
Develop a comprehensive cost analysis for the MHS governance  structures including estimates of implementation costs and cost  savings in additional areas such as health care operations and  infrastructure changes as well as an improved estimate of personnel  savings,
Develop a business case analysis and strategy for the implementation  of its shared services concept, Improve its evaluation of the potential governance structures’  strengths and weaknesses by including quantitative data when  available, and a specific assessment of the degree to which the  options meet the criteria Trained and Ready Medical Force and  Quality Beneficiary Care. We disagree with DOD and believe that more  comprehensive cost analysis will help to distinguish the differences  among the costs and benefits of the options. Third, DOD’s estimate of  personnel cost savings used several potentially flawed assumptions, and  as a result, we determined DOD’s estimate to be unreliable. In its comments, DOD noted that it is committed to the MHS governance  changes agreed to by the Department leadership in 2012 that are  presented in its report in response to Section 716 of the National Defense  Authorization Act for Fiscal Year 2012. As we noted, Section 716 required  DOD to submit a report to the congressional defense committees to  include, among other things, a description of the alternative MHS  governance options developed and considered by the Task Force; an  analysis of the strengths and weaknesses of each option; and an  estimate of the cost savings, if any, to be achieved by each option. Appendix II: Detailed Description of the Potential Governance Structures and DOD’s Assessment of Their Strengths and Weaknesses

DOD’s task force report provided the following detailed description, cost  savings estimates, and strengths and weaknesses of the governance  structures2 it identified as potential options for its Military Health System  (MHS). It would also create central control of the  Military Treatment Facilities.
Why GAO Did This Study

Over the past decade, the cost of the MHS has grown substantially and is projected to reach nearly $95 billion by 2030 according to the Congressional Budget Office. As health care costs consume an increasingly large portion of the defense budget, current DOD leadership and Congress have recognized the need to better control these costs. Section 716 of the National Defense Authorization Act for Fiscal Year 2012 required DOD to submit a report analyzing potential MHS governance options under consideration, and also required GAO to submit an analysis of these options. In response to this mandate, GAO determined the extent to which DOD's assessment provides complete information on cost implications and the strengths and weaknesses of potential MHS governance options. To conduct this review, GAO analyzed DOD's governance report along with supporting documents, and interviewed Task Force members.

What GAO Found

The Department of Defense's (DOD) assessment of potential governance options for its Military Health System (MHS) did not provide complete information on the options' total cost impact and their strengths and weaknesses. As part of DOD's assessment, it identified 13 potential governance options for the MHS and included a limited analysis of the options' estimated costs savings and their strengths and weaknesses. All of the options would create a shared services concept to consolidate common services, such as medical logistics, acquisition, and facility planning, under the control of a single entity. DOD selected an option that would create a defense health agency to, among other things, assume the responsibility for creating and managing shared services, and leave the longstanding military chain of command intact with the services in control of the military hospitals. The National Defense Authorization Act (Act) for Fiscal Year 2012 required DOD to submit a report to congressional committees that would, among other things, estimate the cost savings and analyze the strengths and weaknesses of each option. Using key principles derived from federal guidance, including cost estimating and economic analysis documents, GAO determined that DOD could have provided more information on cost implications and strengths and weaknesses in its report to Congress. Specifically, DOD did not (1) estimate implementation costs and comprehensive cost savings; (2) include a business case to support consolidating common services; or (3) include supporting quantitative data in its analysis of the options' strengths and weaknesses.
DOD's cost analysis for its potential MHS governance options was limited In that it did not include implementation costs and only estimated personnel costs savings based on some potentially flawed assumptions, such as not using representative salaries to estimate personnel savings.
DOD did not develop a business case analysis and an implementation strategy for its proposed shared services concept. A business case analysis would, among other things, define the services to be consolidated, cost to implement and efficiencies to be achieved and could support DOD's assertion that implementing shared services could achieve efficiencies. DOD approved a shared services concept two other times since 2006, but it has yet to develop a business case analysis that would provide a data-driven rationale for implementing the concept.
DOD used a qualitative process with input from internal experts to assess the strengths and weaknesses of the potential governance structures. However, it did not balance this support with quantitative data as its criteria for assessing the strengths and weaknesses specified. DOD officials stated that they did not provide comprehensive cost estimates or quantitative analysis of the options because an internal 90-day deadline to report back to the Deputy Secretary of Defense did not allow enough time. However, the act requiring DOD to report to Congress was enacted subsequent to DOD's own internal assessment and did not establish a specific deadline. As a result, DOD could have taken time to conduct a more comprehensive analysis before submitting its report.

What GAO Recommends

GAO recommends that DOD develop (1) a comprehensive cost analysis for its potential MHS governance options, (2) a business case analysis and strategy for implementing its shared services concept, and (3) more complete analyses of the options' strengths and weaknesses. DOD concurred with developing a business case analysis for its shared services concept. DOD did not concur with the other 2 recommendations, stating that further analysis would not alter its conclusions. GAO disagrees and believes that more comprehensive analysis will help to distinguish the differences among the costs and benefits of the options.