Military Health System

Military Health System MG Steve Jones Acting Commander JTF CapMed Ms. Rachel Foster MHS Chief Innovation Officer & Director, Financial Performance and Planning June 1, 2012

BRAC: JTF CAPMED The decision to create JTF CAPMED and the BRAC requirements Implementation & Savings BRAC Lessons Learned JTF actions to reduce costs and improve quality TRICARE Benefit Update and 2013 Proposals on the Hill Update on the implementation of the 2012 TRICARE benefit changes Discussion of 2013 benefit proposals on hill and update on congressional action 2

BRAC: JTF CAPMED The decision to create JTF CAPMED and the BRAC requirements 3

JTF CapMed Establishment 14 Sep 2007 DepSecDef establishes JTF CapMed as a Standing Joint Task Force reporting directly to SecDef through DepSecDef Ensure effective and efficient delivery of world-class military healthcare in the NCR Oversee execution of the NCR Medical BRAC Conduct other missions as assigned to improve management, performance and efficiency of MHS 4

BRAC Summary BRAC consolidated four NCR inpatient hospitals into two Most complex and largest Base Realignment and Closure project in the history of the Department of Defense $2.8 billion in construction and outfitting of over 3 million square feet of new and renovated medical and administrative space Consolidation of over 4,400 civilian personnel Relocation of 224 Wounded Warriors and their families Migration of 9,600 medical staff Concentrated Tertiary Care at Walter Reed National Military Medical Center Provided additional Specialty Care Services at Fort Belvoir Community Hospital 5

Walter Reed National Military Medical Center New WRNMMC Capabilities Vision Centers of Excellence National Intrepid Center of Excellence Level 2B Nursery Level 2 Trauma Care Consolidated Cancer Center Military Advanced Training Center Gynecological ecoogca Oncology Prostate Oncology Breast Cancer Center Medical Oncology Surgical Oncology Comprehensive Warrior Transition Support Services Joint Pathology Center WRNMMC Staff: ~6000 Total Beds: 345 ICU Beds: 50 Operating Rooms: 20 Projected Wounded Warriors: 350 New Construction: 1.1M sqft Renovation: 472K sqft New Parking: 2,693 spaces New Warrior Lodging: 306 Beds 6

Fort Belvoir Community Hospital FBCH Capabilities Adult and Radiation Oncology Services ICU IP Behavioral Health Inpatient Pediatric Breast Center Nuclear Medicine Laser Eye Center Oral Surgery Chiropractic Services Pain Clinic Rheumatology Vascular Cardiac Catheter Lab Neurology Endocrinology FBCH Staff: ~3000 Total Beds: 120 Pulmonary Clinici ICU Beds: 10 Interventional Radiology Comprehensive Warrior Transition Services Operating Rooms: 10 Projected Wounded Warriors: 400 New Construction: 1.5M sqft New Parking: 3,500 spaces New Warrior Lodging: 288 Beds 7

Implementation & Savings BRAC Lessons Learned JTF actions to reduce costs and improve quality 8

BRAC Lessons Learned 504 Lessons Learned gathered from stakeholder groups 53 Critical Lessons Learned grouped into 6 principal p areas: Governance: A decision-making structure with a defined process to support it is crucial to ensuring key decisions are made which move the program forward to a successful completion. Requirements: Early requirements identification helps define resource decisions but must be balanced with the necessity for flexibility in the desired product or service. Communication: A deliberate communication strategy that incorporates a rapid response process to correct misinformed stakeholders is required for projects with transformational change implications. Resources: Persistent, active gathering of resources is required for the execution of major projects where resourcing spans multiple l fiscal years, Services, and appropriation categories. Plans: A strong program management foundation is essential to manage the size, scope, and complexity of the transition of healthcare delivery. Culture: Sustained emphasis on cultural integration is important before, during, and after transformational changes to the organization. 9

Reduce Costs & Improve Quality Consolidated initial outfitting and transition contract for two Service Hospitals Achieved bid saving of $77M against independent government cost estimate Estimate 9.5% ($32M) savings in the execution of $341M General Dynamics Initial Outfitting & Transition Contract Re-used 10,781 equipment items resulting in cost avoidance of $114M Established Single Referral Management and Appointing Center for Integrated Delivery System Increased patient access Improved referral management 10

Reduce Costs & Improve Quality Integrated Healthcare Data Network (JMED) Provides a common desktop and a standardized suite of IT tools for providers across the NCR Improves visibility of patient information (patient data, radiology images, and email) Reduces sustainment costs for NCR hospitals Implemented Guaranteed Placement Program Reassigned 2,300 WRAMC employees without displacing any of the 1,930 NNMC or DACH employees maintained skilled workforce Conversion of 4,410 Service civilians to DoD One civilian workforce for Integrated Delivery System Improved career progression and retention 11

Reduce Costs & Improve Quality Standardization Training i Procedures Equipment Interoperability of Staff Improved Patient Safety 12

Defense Health Board Findings The Service-specific and facility-centric cultures of the Army, Navy and Air Force medical commands conflict with the needs of an IDS, and there is no evidence of a concerted, organized effort to engineer the new integrated military healthcare culture needed to achieve and sustain a joint Armed Services IDS that provides world-class medical care. Many dedicated individuals have worked diligently to achieve what they have perceived to be the goals of the regional integration effort; however, there are multiple circumstances beyond their control that have impeded, and continue to impede, their efforts. Among these are Service-specific and facility centric military healthcare cultures, a confusing and redundant chain of command, and ambiguity about the vision, goals and expectations for the future NCR IDS and the WRNMMC. There is an urgent need to clarify the vision, goals and expectations for the future NCR IDS, especially for the WRNMMC, and to consolidate organizational and budgetary authority in a single entity. Source Document: Achieving World Class - National Capital Region Base Realignment and Closure Health System Advisory Subcommittee of the Defense Health Board 15 October 2009 Report 13

Defense Health Board Recommendations One official should be empowered with singular organizational and budgetary authority and staffed appropriately to manage and lead the healthcare integration efforts and operations in the NCR Develop a shared vision and a clear mission statement for the NCR IDS Create a Comprehensive Master Plan for the NCR IDS Engineer a culture that will support the NCR IDS and world-class medical facilities Develop a strategic technology master plan for the WRNMMC, FBCH and NCR IDS Ensure that all further planning is informed by user groups and reflects input from patients t and their families and frontline clinicians Implement a mechanism for the ongoing independent review of the design and construction of the new WRNMMC Source Document: Achieving World Class - National Capital Region Base Realignment and Closure Health System Advisory Subcommittee of the Defense Health Board 15 October 2009 Report 14

NCR Medical Integrated Delivery System JTF CapMed Operational and Fiscal Control of NCR Hospitals Walter Reed National Military Medical Center Fort Belvoir Community Hospital Hospital Staff - 9,703 (Milpers - 3,783,, Civpers - 4,410,, Contractors - 1,510) ~$1.15B Operating Budget TACON Medical Clinics: 32 Graduate Medical Education: 63 programs, 2011/12-711 trainees Forty-six percent (46%) of all Army GME programs and 34% of all Navy GME programs are based in the NCR. These programs include 28% of all Army and 23% of all Navy GME trainees Patient Population: Hospitals: ~133,000 enrollees; JOA: ~280,000 enrollees 15

Objectives of NCR Medical Integrated Delivery System Joint Hospitals provide the foundation for the NCR Medical Integrated Delivery System the the military s first multi-service system under a single authority Objectives of the NCR Integrated Delivery System Quality Improvement and Cost Reduction: Single Quality Management System Outcomes management and continuous quality improvement Reducing administrative/overhead costs Sharing risk and eliminating cost-shifting Efficient use of capital and technology systems & support Standardization of equipment and business practices Improved consumer responsiveness Improved health of entire community 16

Approach for Managing The Benefit TRICARE Benefit Update and 2013 Proposals on the Hill Update on the implementation of the 2012 TRICARE benefit changes Discussion of 2013 benefit proposals on hill and update on congressional action 17

Military Health 2012 Proposals Increase TRICARE PRIME Fees for < 65 Retirees Proposal: Immediate modest increase in Prime enrollment fees for all retirees under age 65 by $5/month for families OR $2.50/month for individuals (+13% for both groups) Exclude: 1) Survivors (regardless if service connected death was combat related or not) 2) Medically retired members and their beneficiaries Indexes enrollment fees to National Health Expenditure per capita growth (6.25% per year assumed in FY 13-16) Exclude: 1) Survivors (regardless if service connected death was combat related or not) 2) Medically retired members and their beneficiaries What This Accomplishes: Introduces most modest adjustment t in fees possible (fees have not changed since 1996) TRICARE Prime enrollment fee for families is $460 per year (or $230 for individuals) Indexing keeps pace with health care inflation, reduces annual battle over proposed fee changes Protects most vulnerable populations from additional financial burden Savings: $430M over the FYDP 18

Military Health 2012 Proposals Pharmacy Co-Pay Adjust pharmacy co-pays for all beneficiaries (except active duty) to promote use of mail order vice retail pharmacy What This Accomplishes Pharmacy co-pays incentivize use of most efficient source (mail order and medical treatment t t facilities) Savings: $2.6B over FYDP Generic Brand Formulary Tier 3 (Non-Formulary) Current Benefit Retail $3 $9 $22 MTF $ - $ - $ - Mail Order $3 $9 $22 Proposed Benefit Retail $5 $12 $25 MTF $ - $ - $ - Mail Order $ - $9 $25 19

U.S. Family Health Plan (USFHP) Proposal: Transition future USFHP enrollees to Medicare once they become eligible Beginning in FY 2012, new enrollees will not remain in USFHP plan at point of Medicare eligibility Members already enrolled in USFHP (whether over or under age 65) are grandfathered and allowed to continue participation even after becoming Medicare- eligible What This Accomplishes: Equity/Consistency: DoD becomes second payer to Medicare as with other Medicare- eligible retirees No effect on members hospital choices: They can continue to use USFHP hospital as regular TRICARE provider even after becoming Medicare-eligible Protects current enrollees -- exceptionally reasonable transition Modest added cost to Medicare ($508M for 2011-2021) -- offset by increased revenue from additional Medicare Part B enrollees Lower cost to Department (other DoD Medicare-eligible retirees cost 80% less than those in USFHP) Savings: $3.2B over the FYDP 20

Proposal: Health Care Proposal #5 Medicare Rates at Sole Community Hospitals Introduce federal rule for TRICARE to adopt Medicare rates at 420 Sole Community Hospitals (SCHs) Transition over four years to avoid major disruption to hospital business plans/revenue streams with opportunity for waivers when meeting specific criteria What This Accomplishes Complies with statutory provision 10 USC 1079j(2), which mandates that TRICARE inpatient and outpatient services follow Medicare reimbursement rules to the extent practicable Medicare rates generally 42% lower than TRICARE for these institutions Savings: $400M over the FYDP 21

Military Health 2013 Twin Pressures/Unsustainable Paths Federal Budget Military health must participate in cost reduction efforts, together with other defense priorities Budget Control Act of 2010 requires DoD to reduce overall budget by $487 billion over ten years National Health Care National health care costs continue to rise at rates above general inflation Over 60% of care purchased from private sector; we are not immune to private sector cost pressures For 16 years, beneficiaries protected from any growth in out-ofpocket costs and in many cases, beneficiary out-of-pocket costs were further reduced while private sector moved in opposite direction 22

2013 Defense Health Budget Guiding Principles Maintains one of the best health benefits in the country: Our beneficiaries active and retired deserve a very generous health benefit Out-of-pocket costs remain far below percentage of cost-sharing sharing experienced in 1995, even with proposed changes Protects the most vulnerable beneficiaries from proposed changes in cost-shares: Service members (and their families) medically retired from active service are exempt Families of service members who died on active duty are exempt Multi-pronged effort continues to invest in health and health care, and shares responsibility for managing costs 23

Since 1995, There Have Been Significant Expansions in DoD Health Benefits 1940s-1950s Title 10 Legislated Benefit Space Required for Active Duty Space Available for Families and Retirees 1966 CHAMPUS Legislated Benefit Civilian Health Care where MTFs do not exist. Enhanced Benefit 2001 Catastrophic Cap Reduced to $3,000 Enhanced TRICARE Retiree Dental Program TRICARE Senior Pharmacy Elimination i of Prime Co-pays for AD Family Members Extension of Medical and Dental Benefits to Survivors School Physicals Entitlement for Medal of Honor Recipients TRICARE Prime Travel Entitlement Chiropractic Care Program 2002 TRICARE Plus TRICARE For Life TRICARE Prime Remote for AD Family Member 2003 TRICARE Online TRICARE implements HIPPA Patient Privacy Standard 2006 Extended TRICARE benefits for dependents whose sponsor dies on Active Duty Limit deductibles/co-pays for nursing home residents under the Pharmacy Program Enhancement of TRICARE Reserve Select coverage Families and Retirees <65 2007 1993 Expansion of TRICARE Reserve Select TRICARE Managed Care Legislation coverage to All Reservists Automatic enrollment for Active Duty Three year Extension of Joint DoD/VA Space Required for TRICARE Prime enrollees Incentive Program Space Available for Non-enrollees Planning/Management Claims Processing Standardization Expanded Disease Management Programs Coverage of Forensic Exams for Sexual Assaults 1995-1998 TRICARE Triple Option Benefits Prime, Extra and Standard TRICARE Senior Prime Demonstration 1999-2000 Further Expansion: Prime Remote for Active Duty TRICARE provider rates >=Medicare Beneficiary Counseling & Assistance Coordinators TRICARE P i R t f AD F il Dental anesthesia for pediatric cases 2004 Transitional Assistance Management Program (TAMP) Expansion Guard/Reserve TRICARE (Early Eligibility, Reserve Family Demo) Elimination of Non-Availability Statements (NAS) 2005 TRICARE Reserve Select Extended Health Care Option/Home Health Care (ECHO / EHHC) TRICARE Maternity Care Options 2008 Wounded Warrior Benefits 2009 Elimination of preventive copays for Standard Increase in ECHO cap TAMP for AD joining the Sel Res Smoking cessation program 2010 Guard/Reserve Expanded Early Eligibility ADSM dental benefit for TAMP reservists Survivor Dental 2011 TRICARE Young Adult 24

3,500,000 Proportion of Retirees <65 using TRICARE is increasing g( (if nothing changes) Number of retirees <65 is expected to decline due to aging into the 65+ population 3,000,000 2,500,000 2,000,000 60% 61% 64% 67% 71% 73% 75% 77% 78% 80% 81% 82% 84% 85% 86% 87% 88% 89% 1,500,000 1,000,000 500,000 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Users Projected Users Eligibles Projected Eligibles Source: Eligibles DEERS; Projections - MCFAS. User defined as an eligible beneficiary using either an MTF or Private Sector Care for at least one visit during the year. Projected number of users is an extrapolation of current trends. 25

Beneficiary Cost-Share Trends Prime and Standard Mix Decrease in % of Retiree Cost-Shares $15,000 27.1% Percent Individual Cost Share $12,000 30.0% 24.0% $9,000 17.6% 18.0% $6,000 12.2% 12.0% 11.7% 11.3% 10.9% 10.6% 12.0% $3,000 6.0% $ 1996 2000 2005 2006 2007 2008 2009 2010 Beneficiary Expense Gov't Cost Beneficiary share Assumes all care received in the civilian sector for a family of 3 Blended TRICARE rate is based on Ratio of Standard to Prime 0.0% Individual Cost Share in Dollars 26

Approach for Managing Health Care Costs Health Care to Health Provider Payments Internal Efficiencies Beneficiary Cost Shares Promoting healthy behaviors, lifestyles, and choices by transitioning the focus from health care to health Aligning provider payments with other Federal health programs and other competitive health care organizations Reducing the Department s administrative overhead in managing and overseeing the delivery of health care Adjusting beneficiary cost shares, while maintaining low out-of-pocket costs and protecting the most vulnerable beneficiaries 27

Military Retirees and Families Beneficiary Cost Shares (FY 2013 Proposals) Increase in existing TRICARE Prime enrollment fees and TRICARE Standard deductibles New enrollment fees for TRICARE Standard and TRICARE For Life Removal of Enrollment Fees from Catastrophic Cap calculation Retirees & Families / Active Duty Families Increase in co-payments for certain prescription drugs Beneficiaries affected by increase in prescription drug co-payments when they fill prescriptions from retail or mail order pharmacies (not from MTFs) Indexing of Enrollment Fees / Deductibles / Co-pays / Catastrophic Caps / Prescription Drug Co-pays Proposals exempts medically retired service members / families; and survivors of military members who died on active duty 28

Structure of Proposals Tiers Those who can afford more, pay more For Prime and TFL Enrollment fees Based on retired pay Tiers indexed based on COLA Beneficiaries will not move from one tier to another from year to year Tiers established based on recommendations from the Task Force on the Future of Military Health Care No tiers for Standard/Extra or Pharmacy copays Ramps and Indexing Enrollment Fees ramp up over a period of 4 to 5 years At end of ramp, fees indexed based on growth in health care costs National Health Expenditures (NHE) per Capita Pharmacy co-pays have ten year ramp, then indexed to prescription ingredient costs 29

FY 2013 Proposals (Enrollment Fees) TRICARE Prime Fees Under 65 Retirees, Tiered, No Impact to ADFMs Annual Retired Pay (FY13) FY 12 FY 13 FY 14 FY 15 FY 16 FY 17* FY 18 FY 19 FY 20 FY 21 FY 22 $0 to $22,589 (Family) ** $460/$520 $600 $680 $760 $850 $893 $941 $989 $1,039 $1,098 $1,161161 $22,590 to $45,178 (Family)** $460/$520 $720 $920 $1,185 $1,450 $1,523 $1,605 $1,687 $1,773 $1,874 $1,980 $45,179 & above (Family)** $460/$520 $820 $1,120 $1,535 $1,950 $2,048 $2,158 $2,268 $2,384 $2,520 $2,663 * Indexed to medical inflation (National Health Expenditures) after FY 2016 ** Individual Fees = 50 percent of Family fee TRICARE Standard/Extra d/e t Fees/Deductibles Under 65 Rti Retirees, No ADFM impact Annual Enrollment Fees Current FY 13 FY 14 FY 15 FY 16 FY 17 FY 18* FY 19 FY 20 FY 21 FY 22 Individual $0 $70 $85 $100 $115 $130 $137 $144 $151 $160 $169 Family $0 $140 $170 $200 $230 $250 $264 $277 $291 $308 $325 Annual Deductibles Individual $150 $160 $200 $230 $260 $290 $306 $321 $338 $357 $377 Family $300 $320 $400 $460 $520 $580 $611 $642 $675 $714 $754 *Indexed to National Health Expenditures after FY 2017 TRICARE for Life (TFL) Fees 65+ Retirees, Tiered, No Impact to ADFMs Annual Fee Per Individual Current FY 13 FY 14 FY 15 FY 16 FY 17* FY 18 FY 19 FY 20 FY 21 FY 22 Tier 1: $0 to $22,589 $0 $35 $75 $115 $150 $158 $167 $177 $187 $197 $208 Tier 2: $22,590 to $45,178 $0 $75 $150 $225 $300 $317 $335 $353 $373 $394 $416 Tier 3: $45,179 & above $0 $115 $225 $335 $450 $475 $502 $530 $560 $591 $624 * Indexed to medical inflation (National Health Expenditures) after FY 2016 Note: All proposals exempt service members (and their families) medically retired from active duty and families of service members who died on active duty. 30

Pharmacy Co Pays (Includes ADFMs) FY 2013 Proposals (Pharmacy Co-Payments) Retail ilr Rx (1 month fill) Current Fee FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Generic $5 $5 $6 $7 $8 $9 $10 $11 $12 $13 $14 Brand $12 $26 $28 $30 $32 $34 $36 $38 $40 $43 $45 Non Formulary* $25 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Mail Order Rx (3 month fill) Generic $0 $0 $0 $0 $0 $9 $10 $11 $12 $13 $14 Brand $9 $26 $28 $30 $32 $34 $36 $38 $40 $43 $45 Non Formulary $25 $51 $54 $58 $62 $66 $70 $75 $80 $85 $90 Military Treatment Facilities No change still $0 co pay N/A = Not available at retail after FY 12, except under limited circumstances Note: All proposals exempt service members (and their families) medically retired from active duty and families of service members who died on active duty. 31

$25,000 Retired Beneficiary (<65) Share of Total Health Cost With proposed changes, does not approach 1996 levels 50% $20,000 40% $15,000 27.1% 30% $10,000 17.6% 20% 12.2% 10.6% 10.2% 10.3% 12.2% 14.2% 14.1% 14.0% $5,000 10% $0 FY96 FY00 FY05 FY10 FY11 FY12 FY13 FY17 FY18 FY19 Govt Cost Total Out of Pocket Beneficiary Share of Total Health Care Cost 0% TRICARE Costs are estimates for a Retiree Family of 3 for care received in the private sector (For Retiree Families who receive care primarily from MTFs, their percentage share is less) 32

Questions? 33