The Military Health System & MEPRS August 2005 John L. Kokulis

Items For Discussion MHS Financial Dynamics Actions We’re Taking To Reduce Costs How MEPRS Plays An Important Role In This Effort: Analysis Of Current Trends Integrated Systems For Data Collection

Unified Medical Budget For FY2006 RDT&E $0.2B Procurement: $0.4B Medicare Eligible Retiree Health Fund $10.7B (DoD contributions into the fund) Operations & Maintenance: $19.2B (52%) (29%) MILPERs: $6.4B (17%) MILCON: $0.4B FY2006 Total Budget: $37.1Billion

MHS Financial Dynamics Medical Mission Increased number of beneficiaries using system Health care inflation Changing benefits, i.e. Reserve health care benefit Readiness Mission Military to civilian conversion within MHS Global War on Terrorism Army Campaign Plan (“Modularity”) BRAC impact

MHS Financial Dynamics The military healthcare costs continue to increase substantially, presenting the Department with a significant fiscal challenge. The DoD health care costs are rising at a rate faster than DoD top line. The principle factors driving this increase include: New/expanded benefits authorized by Congress Increased use of the benefit by previously non-reliant beneficiaries (i.e. eligibles who previously elected not to use the benefit), Increases in the utilization of health care services by DoD beneficiaries. Increases in health care inflation.

MHS Financial Dynamics Benefit Additions Are Also Increasing Costs In 2001, military health care costs were expected to grow from $19B to $27B (+43%) by 2007 In 2002, Congressionally mandated expansion of TRICARE coverage for military retirees became effective With these expanded benefits, health care costs will grow to $39B (+107%) by 2007 These expanded benefits add a cost of $68B over FY07-11 This year, Congress may expand TRICARE coverage for Reservists (Graham amendment could cost over $6.5 Bil over 6 years) $39 $37 $36 $32 $30 $24 $19

MHS Financial Dynamics If DoD Health Budget grows at recent trend rates, it will reach $64B, or 12% of DoD topline in 2015 If DoD Health Budget constrained at 8% of DoD topline 2005 DoD Health Budget 7% of DoD topline; projections call for 12% of topline by FY15

What Were Doing To Address This Growth DoD Pharmacy Expenditures Supply Costs: Prime Vendor Standardization Federal Pricing For Retail Pharmacy Excess Overhead Costs: DoD/VA Sharing BRAC Efficiency Efforts: Venture Capital/Recapture Business Planning PSC Contract Management Efficiency Wedge

The MTF “Efficiency Wedge”

“Efficiency Wedge” & BRAC $ Millions BRAC Won’t Help Us Until Many Years Out!!

THE DRIVE TO BE MORE EFFICIENT: Why The MHS Needs MEPRS Analysis Of Current Trends: Getting the information to us in a timely manner Educating us as to where we are (what’s driving the trend we’re seeing) Developing The Standards For Future Systems & Business Practices: New Systems – real time info Integrate systems with business policies

ANALYSIS OF CURRENT TRENDS Primary Care Provider Productivity RVU’s Per Day MHS Total Goal: > 14.5 During the most recent quarter all service improved and are at the goal level. For Army this is a result of slight increase in workload thus improving overall production. For the Navy and Air Force this has primarily been a result of improved manpower reporting that has reduced the denominator, thus increasing the overall score.

Systems Integration: i.e. DMHRSi * * * * * * *We all own this issue: It is not just an IM/IT issue * * * * * * * DMHRSi Manpower Personnel Labor Costing Education & Training Readiness System has a useful life of 8 years Project Cost: $100Mil + Full implementation by December 2007 Project started in 2000 Project first planned in the late 1990s We Can’t Accept This Type Of Timeline and Expense To Integrate Our Systems 13

Summary The MHS is on a continuous effort to improve efficiency and reduce costs Timely and accurate information is essential in allowing us to understand our business and meet this goal This will require education and training on the systems we have and require migration to new, more efficient automated systems The 4 goals established by the MMIG supports this effort. We look forward to your continued good work.

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