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

2. 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

3. 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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. The MTF “Efficiency Wedge”

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

11. 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

12. 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.

13. 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

14. 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.

15. QUESTIONS ?