Provide health care

A better way to provide health care to our troops

The current system isn't working. Here's how to fix it.

By Michele Flournoy and Stephen Ondra

A core tenet of keeping faith with the men and women who serve in the United States military and their families is to provide them with the best quality health care. It is a central tenet of our promise to those who serve and sacrifice to defend the nation. In recent years, however, the defense health system has not kept pace with cutting-edge developments in civilian health care that help to deliver better health outcomes. At the same time, health care costs in the Department of Defense are rising faster than either the civilian sector or other federal agencies. This unsustainable trajectory threatens to divert more and more resources from DOD’s core mission of organizing, training and equipping warfighters. We need a new approach.

Today’s military health care system has two basic components: military health facilities run by DOD; and TRICARE, a health care insurance program that provides millions of beneficiaries with access to non-DOD health care providers. In both cases, there is high satisfaction with the generous health plan benefits but highly variable levels of satisfaction with the actual care provided. A 2015 Defense Health Agency report to Congress explains that satisfaction with the health care provided through TRICARE fell below civilian benchmarks in two of three beneficiary categories. Most disturbingly, the least satisfied groups were active duty beneficiaries and their families, who had 27 percent and 11 percent lower satisfaction rates, respectively. While the quality of care received in military treatment facilities met expectations, the overall experience and ease of access to health care services for Military Health System beneficiaries were areas of concern. From 2012 to 2014, ease of care access for MHS beneficiaries was 9 percent lower than civilian benchmarks for both routine and specialist appointments.

At the same time, DOD health care costs have been rising steadily. In 1990, health care costs constituted about 4 percent of defense expenditures. From 1994 to 2000, they held constant at about 6 percent and today stand at roughly 10 percent of DOD spending — more than $50 billion per year. DOD is not alone in experiencing this cost growth, but its per capita health care costs grew more substantially than those in the civilian sector or other federal health care programs.

Several factors have contributed to this disproportionate cost growth. After 9/11, TRICARE was expanded to include more beneficiaries (active duty members and their dependents, military retirees and their families) and with more generous benefits than are typically available in the private sector. Expanded coverage and broader eligibility readily explain why retirees and their dependents have increasingly chosen DOD-sponsored care over other options, such as employer-provided health plans. Since 2000, the number of TRICARE beneficiaries has grown from 8.2 million to 9.5 million; while only 15 percent of all TRICARE-eligible enrollees are active duty members, retirees and their families make up over half of those in the TRICARE system.

With benefit designs that fail to encourage enrollees to seek higher value care, the rate of services used per beneficiary in DOD-sponsored programs has grown in a way that is out of proportion to what has been observed in comparable systems. In 2012, when compared with their nonmilitary counterparts, active duty families consumed 82 percent more medical services and retiree families were 60 percent higher. The combination of more members using more services resulted in a cost increase of 300 percent from 2000 to 2012. Looking to the future, DOD projects that TRICARE costs will grow by 25 percent from 2013 to 2023; experts at the Congressional Budget Office estimate that cost growth could be significantly greater.

The combination of lower health care satisfaction and higher cost stems in part from the fact that DOD is lagging behind other health care systems in shifting from fee-for-service reimbursement models and benefit designs to approaches that incentivize the use of higher value care.

Traditional fee-for-service models reimburse providers according to the total number and kind of patient encounters (e.g., how many tests run or procedures performed), rather than according to the health care outcomes those encounters produce (e.g., how functional the outcome is and how satisfied the patient is with the treatment). Fee-for-service tends to incentivize and drive ever-greater quantity of care instead of increasing the value (outcome quality and patient experience/cost) of that care.

To address this problem, many private sector health care providers, including well-known brands such as Blue Cross, Aetna and UnitedHealthcare, have accelerated their integration of value-based care reimbursement. Federal agencies, such as the Centers for Medicare & Medicaid Services are catalyzing this transition. For example, CMS has begun shifting to value based alternative payment models and in March of this year, announced that 30 percent of its spending is now based on such models. This is well ahead of schedule and puts CMS on a favorable trajectory to meet its goal of having 50 percent of all contracts in some form of value-driven APM by 2018.

In the coming year, DOD and Congress will have a rare window of opportunity to pilot fee-for-value approaches in the defense health system. TRICARE’s managed care support contracts typically have a five-year period of performance, and the next major TRICARE contract, valued at $55 billion over five years, is slated to be awarded in 2017. This contract renewal provides an important vehicle to pilot new approaches to reimbursement and care. Additionally, Congress will soon complete its markup of the FY2017 Defense Authorization Bill, which offers another possible vehicle for mandating that DOD undertake pilots in fee-for-value approaches for TRICARE and adopt such care models in its military health facilities.

For too long, efforts to undertake much needed reforms in the DOD health care system have been derailed by focusing almost exclusively on cutting costs by decreasing provider reimbursement and increasing copays from beneficiaries. This approach has not only failed to control health care spending, it has also led to lower satisfaction for DOD beneficiaries, especially our active duty members. Going forward, we need to ensure that our service men and women, military retirees and families, receive the best quality of care available and that unsustainable growth in defense health care costs does not increase risk to the DOD’s core national security mission. By adopting value-based health care approaches and benefit designs, DOD can keep faith with those who serve by improving the both the consumer experience and quality of care they receive, while also ensuring that burgeoning health care costs do not undermine the DOD’s ability to provide the best possible equipment and training to those sent into harm’s way to defend us.