1. Transforming to Performance Based Financial Management Office of the Deputy Assistant Secretary of Defense Health Budgets and Financial Policy

2. 2 Why are we here ? “the QDR recommends continuing to shift toward a market-driven, performance-based investment program”. Final QDR Report, Feb 6, 2006

3. 3 Outline Where are we now? –Financials –Organization –Benefit What did QDR say about Performance Based Financing? How MEPRS Plays a Role In This Effort

4. 4 FY2007 Unified Medical Budget (Enacted) Operation & Maintenance: $20.5B (51%) MILPERs: $7.0B (18%) MILCON: $0.4B Medicare Eligible Retiree Health Care Fund $11.2B (DoD contributions into the fund) Procurement: $0.4B RDT&E: $0.3B FY2007 Total Budget: $39.8 Billion (28%)

5. 5 Where are we now – FY08? Unified Medical Budget for FY 2008 (Billions) FY 2008 Total President’s Budget Request: $37.1 Billion

6. 6 FY 2008 President’s Budget DHP O&M by Budget Activity Group (Millions) FY 2008 total: $20,182,381 79% of DHP O&M budget is for Patient Care

7. 7 Where are we now with - Private Sector Care ? Cost Drivers New users – beneficiaries who are dropping private health insurance and returning to TRICARE Increased utilization – existing users are consuming more health care Inflation – health care inflation is still above other sectors New Benefits – authorized by Congress but not always funded Migration – In-House Care workload is declining, shifting cost to Private Sector Care

8. 8 Private Sector Care Cost Drivers New users – beneficiaries who are dropping private health insurance and returning to TRICARE Increased utilization – existing users are consuming more health care Inflation – health care inflation is still above other sectors New Benefits – authorized by Congress but not always funded Migration – In-House Care workload is declining, shifting cost to Private Sector Care

9. 9 Where are we now with - Global War on Terror (GWOT) Funding? Operations: Enduring Freedom, Iraqi Freedom, and Noble Eagle This is a supplemental request – not part of DHP funding requirement in annual President’s Budget GWOT Funding is based on a comprehensive model collaboratively developed and continuously refined by OASD Health Affairs/TRICARE Management Activity, Services’ Medical Departments, Comptroller and OMB.

10. 10 Clinical BRAC Schedule Construction Design Outfitting & Transition Construction Design Outfitting & Transition Construction Design Construction Design Outfitting & Transition Design

11. 11 Major Clinical BRAC Construction Scope Bethesda SMMAC North SMMAC South Ft. Belvoir Parking Garage B Intrepid Center & Fisher Houses (NON-BRAC) Center of Excellence - Battlefield Health & Trauma Clinical/Admin Addition Parking Garage A New ER/ICU Tower

12. 12 Where are we now - JMC? Joint Medical Command –NDAA 2005 – called for plan for JMC –DepSecDef Memo – Nov 2008 outlined a way ahead. Calls for “shared services” approach (echoes QDR) –Looking at Defense Health Agency approach Challenge to our RM community: –What can we do to implement shared services functional activities that are: Effective – provide timely, accurate services Efficient – provide at reduced cost/improved service levels Provide value to customer - guarantee performance

13. 13 Health Budget Growth as % of DoD If DoD Health Budget grows at recent trend rates, it will reach $64 B, or 12% of DoD topline in 2015 To maintain current 8% of DoD topline 2006 DoD Health Budget = 8% of total DoD Budget Projections are for 12% by FY 2015

14. 14 Efficiencies & The Military Benefit What if we were to: Eliminate all of TMA HQ O&M Eliminate all of Central IMIT Double the Efficiency Wedge Reduce Supply costs in MTFs by 25% Total reduction in FY2015 only $2.3B out of $64.5B Program

15. 15 Allen’s Rule of Universal Constancy The only thing constant … is the varying rate of change. From: The Official Rules of Work

16. 16 Performance-Based Financing Addressed in QDR 3 Basic components outlined – based on recommendations of Local Authorities Working Group –1. Decision Support Information Visibility of cost and performance data. –2. Determination of Funding Requirements Allocate funds based on value – based performance method –3. Enhance financial execution for stability and innovation Improve visibility of private sector care financial requirement Establish an innovation investment reserve fund

17. 17 Performance-Based Financing Addressed MHS Strategic Plan: Goal 4: Transformation to performance based management for both force health protection and delivery of the health care benefit –Clear direction and performance objectives… –Alignment of authority and accountability –Accurate/transparent measurement of performance Being held accountable and demonstrating wise use of resources will engender continued support from our stakeholders.

18. 18 MEPRS Role Financial Transparency Need to have our financial systems working towards the same goals –How much do we need? –Where is it going? –What is going to be produced with it? –Is it meeting our goals? –How do we invest for the future?

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20. 20 MEPRS Role Performance Based Planning “Standard format and process, for the development and submission of business plans.” TriService Business Planning Tool –Initially focused on production 2004 –Evolving to performance improvement plans 2005-2006 –Strategic focus on critical initiatives

21. 21 MEPRS Role Performance Based Monitoring MHS Metrics Standardization Workgroup –Responsible for a standard metric set consistent with corporate goals. –A process for addition, deletion, and modification of metrics. –Deliverables include a list of standard metrics, complete with data sources, parameters, frequency, and algorithms. –Membership: Director, Program Review and Evaluation, HB&FP Navy, Army, Air Force Representatives TRO, TMA Representatives

22. 22 Primary Care Provider Productivity by Service Maintain Reasonable Costs: Health Care System Meets Contract Goals MHS Total Goal ≥ 15.7 Source: M2 (SADR) & EASIV (FTEs) Current as of Jun 07 Due to missing MEPRS data the following MTFs were excluded for FY07: Army: 0032- Evans ACH-Ft. Carson, 0069-Kimbrough Amb Care Center-Ft. Meade, 0081 Patterson AHC-Ft. Monmouth, 0086-Keller ACH-West Point, and 0131-Weed ACH – Ft. Irwin. Air Force:0248-61 st Med Squad- Los Angeles. Navy: 0039-NH Jacksonville and 0385- NHC Quantico.

23. 23 Medical Cost Per Equivalent Life Maintain Reasonable Costs: Health Care System Meets Contract Goals Data Source: M2 (SIDR/SADR/HCSR-I/HCSR-NI,PDTS); EASIV; Enrollees are adjusted for Age/Gender Current as of Jun 07, with measure reported through FY06

24. 24 Conclusion Pressure to improve financial performance coming from internal and external sources We are implementing financial management processes to advance our ability to meet the challenge but we must continuously improve our performance Benefit changes are ultimately needed to rebalance the financial structure

25. 25 “In times of change the learners will inherit the world…while the learned will find themselves beautifully equipped to deal with a world that no longer exists” Eric Hoffer Why are we here ?

26. 26 QUESTIONS ?