DOD delivers most of the health care needed by active duty personnel and military retirees through its military hospitals and clinics. The DOD Subvention Demonstration

The BBA established a 3-year demonstration of Medicare subvention, to start on January 1, 1998, and end on December 31, 2000. A VA subvention demonstration would serve certain higher-income, Medicare-eligible veterans (effectively, Priority Group 7 veterans): for a limited time period, such as 3 years; in a limited number of locations; and in compliance with Medicare rules that HCFA applies to the private sector, although HCFA could waive rules that were inappropriate or irrelevant to VA. direct VA to maintain reserves against the risk that appropriated funds would be needed to pay for the care of veterans enrolled in the subvention demonstration. It is not yet known what effect DOD’s extensive use of contractors will have on DOD costs for Senior Prime. That would make contractor quality, relationships, and costs a pivotal and uncertain feature of a potential DOD subvention program. A reconciliation after the end of the year to determine final Medicare payments can result in DOD returning a portion of those interim payments if the LOE for all sites for the entire year is not reached. Proposed VA Demonstration Can Benefit From DOD Experience

One of the key issues for VA under the proposed demonstration would be how to market subvention and persuade veterans in subvention sites to enroll in the demonstration. Two models are possible for the demonstration—fee for service and managed care. If a VA subvention demonstration were to include both managed care and fee-for-service sites, a phased implementation, with one type of delivery system being successfully implemented before the other started, would allow both HCFA and VA to focus their resources. VA and HCFA have tentatively agreed to rules that are consistent with the DOD rules and still contain many of the elements that have made it difficult for DOD to manage the demonstration. Good data, consistent across sites, would also be needed to manage and evaluate the demonstration. Concluding Observations

Subvention holds significant potential for giving military retirees and veterans an additional option for health care coverage, for giving DOD and VA additional funds, and for saving Medicare money. If a VA demonstration were authorized, VA would clearly need sufficient time to plan and initiate it. VA could also increase its chance of successfully establishing the demonstration if it took advantage of DOD’s experience.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the Department of Defense's (DOD) Medicare subvention demonstration program, focusing on: (1) the early phases of implementing the DOD demonstration; (2) issues raised by that experience for DOD subvention; and (3) lessons from the DOD demonstration for a possible Department of Veterans Affairs (VA) demonstration.

What GAO Found

GAO noted that: (1) subvention holds the potential to benefit military retirees and veterans, DOD and VA, and Medicare; (2) although it got off to a slow start, DOD has initiated its subvention demonstration and is now serving Medicare-eligible military retirees at six sites; (3) several key operational issues remain; (4) these include development of more understandable payment rules, viable for the longer term, and development of data to manage the demonstration and support its evaluation; (5) most important, the demonstration's final results, in terms of access to health care, quality of patient care, and costs to DOD, Medicare, and retirees, will not be known until the evaluation is completed, several months after the end of the demonstration in December 2000; (6) DOD's early experience with subvention does offer insights if proposals are acted on to permit Medicare subvention for VA; (7) in particular, it would need to consider, in collaboration with the Health Care Financing Administration, how to determine its baseline costs and payment rules, as well as the need for good data for implementation, management, and controlling costs; (8) moreover, VA would need to make its regular enrollment of veterans who wish to use VA health care services interface smoothly with subvention demonstration enrollment; (9) VA would also need to be concerned about potential crowding-out of other, higher-priority veterans by subvention enrollees; and (10) GAO's early work on DOD subvention suggests that VA would have a greater chance of success if it has sufficient time to plan and establish the demonstration, and if the value and feasibility of implementing fee-for-service and managed care subvention models simultaneously were reconsidered.