DoD must pay for quality, not quantity, to tackle rising health costs

By one measure, DoD’s health care bill has tripled over the last 15 years. By another, medical costs now swallow 10 percent of the military’s budget, compared to 6 percent in 2000.

And while the rest of the nation’s health care costs also wildly outpaced inflation during that time, the problem is significantly worse in the military health system for reasons that can’t be blamed on the costs of the wars in Iraq and Afghanistan, according to a new report from the Center for a New American Security.

Rather, the authors point to a familiar culprit: the military procurement system.

The nature of its multibillion dollar TRICARE contracts with a handful of regional health insurers, they found, leads to a “perverse” incentive structure in which clinicians are paid at below-market rates, based solely on the number of tests and procedures they perform instead of whether they’re improving their patients’ health.

“Plainly stated, DOD must recognize that it is simply not possible to maintain traditional fee-for-service discount purchasing strategies,” they wrote. “The approach has not been, and will not be, an effective way to create provider networks that meet the needs of DoD beneficiaries in an economical, customer- satisfying way. We can fix this without spending more money.”

The three authors — Gen. Hugh Shelton (Ret.), a former chairman of the Joint Chiefs of Staff, Dr. Stephen Ondra, a former Office of Science and Technology Policy official, and Peter Levin, a former Veterans Affairs chief technology officer — implored DoD to use its next round of TRICARE contracts to revise the incentive structure along the lines the Health and Human Services department announced last month, when it told Medicare and Medicaid providers it would no longer pay them solely based on the quantity of medical services they performed.

“In the military health system, nobody is actually checking — let alone requiring — that the outcome of the care we’re delivering has a relationship with the cost,” Levin said during an interview on Federal News Radio’s On DoD. “So we have no way of closing the feedback loop between the quality of care and quantity of care. Fee-for-service is a misnomer, because it’s really fee- for-volume. If I’m a doctor, the more services I provide you, the more I can charge. Nobody’s keeping track to make sure that I’m not doing services that are not actually necessary and are really designed to enrich me.”

More flexibility may equal fewer dollars spent

The current TRICARE system, in which private providers are responsible for about 70 percent of all of the services the military health care system delivers to service members, their families and retirees, also was a core subject of the final report the Military Compensation and Retirement Modernization Commission published last month.

The congressionally-chartered panel found that DoD could save several billion dollars each year by migrating to a more flexible health benefits structure which more closely resembles the choices available to government civilians. The Federal Employee Health Benefits Program includes 256 separate private health plans, though, depending on where they live, civilian employees might have access to only a small number of options from that menu.

But both the modernization commission and CNAS argued that would be vastly preferable to the current arrangement, in which DoD awards rigid, years-long TRICARE contracts to just three regional insurers.

The contracts are so large that each of the companies now share space alongside Lockheed Martin, Northrop Grumman and Boeing in annual top 20 lists of the Pentagon’s largest vendors, and because of that, the awards tend to get mired down in protests: the current round of TRICARE contracts was supposed to start in 2010, but legal fights stalled their implementation until 2013.

The CNAS authors say private insurers can help lower DoD’s health costs instead of raising them, but only if the Pentagon creates more agile contract arrangements that allow for the adoption of changes that have already started to happen in the private insurance marketplace.

“DOD should seize the opportunity to align with the direction that CMS and the majority of private insurers are taking and select from a plethora of value- based models that are already being used,” they wrote. “The private sector has recognized that volume-driven provider reimbursements are one of the primary causes of the ever-increasing cost of healthcare. In that broken frame, health outcomes are not only neglected, efficiency is perversely disincentivized. Volume-based models combined with the comprehensive benefit packages (like what DOD offers its beneficiaries) drive up costs at an accelerated rate. In contrast, value oriented networks are quickly gaining traction in the market.”

Gale force winds of opposition

Given the outsized role private providers now play in the military health system, the report also highlighted the importance of sharing medical data between DoD medical systems and those of private providers, and expressed worry that the department’s current procurement of a new electronic health records (EHR) system could be a make- or- break moment.

“DOD is about to procure another major EHR system that may not be able to stay current with — or even lead — the state-of-the-art, or work well with parallel systems in the public or private sector. We are concerned that a process that chooses a single commercial ‘winner,’ closed and proprietary, will inevitably lead to vendor lock and health data isolation.”

Levin, who was part of an earlier, since-abandoned plan to construct a shared electronic records system for both DoD and VA, acknowledged it was entirely possible that the current procurement will result in a system that achieves both departments’ data sharing objectives, even if DoD ends up fielding a proprietary system.

But he said he is not terribly optimistic.

“There was tremendous reluctance — outrageous, gale-force winds opposing the integration of those two systems, and it seemed to me that DoD was never really committed to doing it,” he said. “But there are two different levels of interoperability. One is system interoperability, where a DoD doctor and a VA doctor could go to each other’s facilities, they have identical systems, and there’s nothing new for them to learn. That’s nirvana, and if DoD went that way, that’s what we think would be the fastest and cheapest. But in the event they don’t, at the very least, let’s agree to make sure the data stays the same in a very granular way, and that it can go back and forth in a way that it cannot and does not at the moment.”

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