This document contains information exempt from mandatory disclosure under the Freedom of Information Act. Exemption 5 Applies. 0 Military Health System.

This document contains information exempt from mandatory disclosure under the Freedom of Information Act. Exemption 5 Applies. 1

Military Health System Transformation

July 2006

2

Patient Care, Sustain Skillsand Training

Promote & Protect Health of the Force

Deploy toSupport the CombatantCommanders

to

Military Health System Mission

and

In Peace & War

9

Manage Beneficiary Care

Deploy Healthy Force

Manage Beneficiary Care

Deploy Healthy Force

Deploy Medical Force

Manage Beneficiary Care

Deploy to Homeland

3

World-Wide Fixed Asset Base

10 Medical Centers 60 Hospitals 387 Ambulatory Clinics439 Dental Clinics184 Veterinary Clinics

11 Medical Installations2 Universities (Training)

7 Research Laboratories

10 Medical Centers 60 Hospitals 387 Ambulatory Clinics439 Dental Clinics184 Veterinary Clinics

11 Medical Installations2 Universities (Training)

7 Research Laboratories

Defense Medical Summary

Over 1,200 Fixed Assets

$20 B Replacement Value

Defense Medical Summary

Over 1,200 Fixed Assets

$20 B Replacement Value

4

Military Health System – FY 2006 Military Health System – FY 2006 SnapshotSnapshot

Military Health System – FY 2006 Military Health System – FY 2006 SnapshotSnapshot

(Includes Accrual Fund payments)

People + Money + Assets = Capability

Joint Chiefs of Staff

SECDEF

DEPSECDEF

USD (P+R) CJCS

ASD (HA)

TMA

MilitaryDepartments

Service Surgeons

General

CINCs

Organizational Relationships

TRICARERegional Offices

6

Organizational StructureOffice of the Assistant Secretary of Defense (Health Affairs)

ASD(HA)ASD(HA)

Principal Deputy ASD(HA)

DASDHealth Budget

& Financial Policy

DASDForce Health Protection & Readiness

DASDClinical &

Program Policy

Chief of Staff

Undersecretary of DefensePersonnel & Readiness

Secretary of Defense

Chief Information

Officer

DASDHealth Policy Administration

(Acting)

Strategy andDevelopment

Military Assistant

Direct Report Advisory

Organizational RelationshipDir Med, Chem, Bio,

Radiological, and Nuclear Programs

As of 9 JUN 06

Communication and Media Relations

Chief Pharmacy

Officer

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Reality Check…a Blank Check?

Military Personnel

Direct Care and Other

Purchased Care and Contracts

Pharmaceuticals

TFL PaymentsTRICARE For Life

0

10

20

30

40

50

60

70

80

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022

Actual Projection

Source: Congressional Budget Office (2004); OSD (2005)

(Billions of 2005 dollars)

• Health budget rising rapidly: $18B-2001, $36B-2005, $50B by 2010-2011 (est.)

• Due to new benefits (TRICARE For Life for over 65 population), very rich benefit with insufficient cost shares or indexes, Congressional expansions (TRICARE For Reserves), retirees under 65 opting for TRICARE vs. employer plans

• Aggressive effort to manage costs—New TRICARE private sector contracts ($45B over 5 years), pharmacy formulary, pharmacy federal prices, closure/merger of military hospitals, improved business practices.

• Required—Benefit structure adjustments, to include indexed premiums/co-pays for long term control of cost growth; Health Savings Accounts must also be pursued.

DoD 2005 Projection

8

$1 for inpatient care buys*

59 cents of inpatient care, at the CMAC reimbursement rate

41 cents of an unknown combination of-- - Force Health Protection capability - Non-CMAC reimbursable health care - Inefficiency

$1 for outpatient care buys*

42 cents of outpatient care, at the CMAC reimbursement rate

58 cents of an unknown combination of-- - Force Health Protection capability - Non-CMAC reimbursable health care - Inefficiency

The Price of the “Fog” – We appear to be inefficient, and we can not prove otherwise

• System cannot separate legitimate FHP efforts, non-reimbursed/able healthcare, and inefficiency

* Based on ASD(HA) Study, Perspectives on Efficiency in the Direct Care System

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Critical to Developing a Strategy...

• Who are our stakeholders and what do they value?

• Who are our customers and what do they value?

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Our stakeholders include: The Secretary of Defense, the Service Secretaries, the

Joint Chiefs of Staff, Combatant Commanders, and Congress.

They desire:– A medically ready and protected force– The reduction of death, injuries and diseases during

military operations– Satisfied beneficiaries– Healthy communities– Effective management of DoD Health Care Costs

Our MHS Stakeholders

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Combatant Commanders and Service Members – Value Proposition = Product Leadership

– In supporting Force Health Protection, our primary customers are the combatant commanders and the service members. We are their partners in creating a fit and protected force and they are confident we will provide the best possible medical care any time, anywhere.

DoD Beneficiaries – Value Proposition =Total Customer Solution

– When we manage and deliver the TRICARE benefit, our primary customers are the DoD beneficiaries. They partner with us to improve their health because our system is convenient and because we provide them with evidence based medical advice and high quality medical care.

The MHS Serves two customer groups…..with different value propositions

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Internal Process Perspective

Medically Ready and Protected Force and Homeland Defense for

Communities

Mission Centered Care

IP9 Continuous, efficient health

status monitoring

focuses health improvement

activities

Patient Centered Care

Resource Perspective

IP10 Individual Medical Readiness

is assessed and managed to

improve health and enhance performance

Manage and Deliver the Health Benefit

IP1 Evidence based medicine is used to

improve quality, safety and appropriate

utilization of services

IP2 Beneficiaries partner with us to improve health

outcomes

Deployable Medical Capability

IP8 New products, processes and

services are rapidly developed and

deployed to support the mission – “Bench

to Battlefield”IP6 Comprehensive globally accessible health and business information enables

medical surveillance, evidence based medicine and effective health care

operations

IP5 Joint, interoperable, and

interdependent processes

effectively deliver care anytime,

anywhere

MHS Mission: To enhance DoD and our Nation’s security by providing health support for the full range of military operations and sustaining the health of all those entrusted to our care.

IP7 DoD homeland defenses, civil support and military medical operations, are effectively supported

Primary Execution Structure

Managed Care Support

Contractors

Research and Development

Education and Training

Shared Services(IM/IT, Contracting,

HR Mgmt, Facilities, Etc)

Enabling Structures

Health Plan Management

FP Teaching Hospitals andCommunity Hospitals (Ft. Hood, Jacksonville, Ft. Campbell, FT. Benning, Ft. Gordon, Great Lakes, LeJeunne, Ft. Stewart, Pensacola,Ft. Bliss, Ft. Sill, Wright Patterson, Travis, Ft. Knox, Ft. Leonardwood)

Major Multi-Service Markets(NCA, SA, SD, Tidewater, Madigan, Tripler)

Operational Medicine

IP3 Our health care processes

are patient centered, safe, effective and

efficient

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MHS High Level Measures – Translating Strategy to Operational Terms

• Forces are medically ready and protected– Individual Medical Readiness (IMR) Rate– Disease Non-Battle Injury Rate (Theater and CONUS)

• Death, injuries and diseases are reduced during military operations– Rate of Referrals from PDHRA– % of DNBI or Casualties moved to appropriate level of care

• Beneficiaries are satisfied with their care– Satisfaction with the health plan– Satisfaction with access

• The MHS creates healthy communities– Indexed measure of rate of tobacco use, alcohol use, obesity

and activity level • DoD Health Care Costs are managed,

– Per Member per Month Medical Expense

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DoD Total Force IMR Instrument Panel “Dial”Q2 FY2006 (Army, Navy, Air Force, USMC, USCG)

Fully Ready42%

Partially Ready22%

Not Ready14%

PHA Overdue7%

Dental Class 415%

Other22%

PHA and Dental Class 4 values estimated

~~Military Health System

Office of Transformation

IPT-5 Medical WG

MHSER

•Local Authorities•BRAC•Benefit Design •MRR

JMC

MAYBE

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The MHS Transformation Mission

A continuing process to improve the performance of the MHS and its ability to effectively and efficiently —

• Provide a medically fit and protected military force, capable of performing across the full range of military operations

• Maintain a ready medical capability for supporting joint operations– during combat operations, stability operations, Homeland Defense, disaster relief and other 21st Century challenges

• Deliver high quality, cost efficient health care for the 9.2 million eligible TRICARE beneficiaries

• Sustain a superior health benefit that is affordable within DOD funding constraints

The foundation for the MHS Transformation is the Quadrennial Defense Review (QDR) and the MHS Strategic Plan

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OFFICE OF TRANSFORMATIONOFFICE OF TRANSFORMATION

• Led by Deputy Surgeon General, Navy

• Guide the Entire MHS through our current dynamic transformation process

• Broad Charter to Roadmap implementation of BRAC and Medical QDR for the MHS

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From Plans to Performance

QDRMHSStrategic Plan

MHS TransformationImplementation Plan

Force Business Infrastructure Benefit

Transforms the--

Through 18 QDR Initiatives in Four Focus Areas

Sustainable, improved performance

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Provide the Joint Force with best-in-the world Operational Medicine/Force Health Protection (FHP), and high-quality, cost efficient health care for

beneficiaries, four things are being done:

• Transforming the Business:

• Customer-focused and performance-based organization• Effective processes to anticipate and respond to changes in health care

• Transforming the Force:

• Fully aligned with joint force, providing optimum, joint combat service support

• Rapidly responds to the needs of the changing national security environment

• Transforming Infrastructure: • Reduce excess infrastructure and operate jointly in Multi-Service Markets

• Transforming the Benefit (TRICARE): • Reinforce appropriate use of resources and demand for services• Engage the individual to actively manage his/her health• Set a firm financial foundation for future

MHS Transformation Agenda

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Transformation in the MHS Vigorous Pursuit Since 2002

• Transforming the Business: • Strategic Planning - MHS Balanced Scorecard 2002• Annual Business Plans across the entire MHS2003• Prospective Payment in Direct Health Care system – budget for value 2004• Overhauled TRICARE Contracts – Consolidated regions, established multi-service markets 2004• Delivered superior joint medical capability in Iraq and Afghanistan 2002 - Present• Force Health Protection Advances

• Pre and Post Deployment Health Assessments 2002• Joint Trauma Registry 2004• Medical Readiness Metrics 2006

• Global electronic health record – AHLTA 2005• MHS Office of transformation with QDR Roadmap 2005

• Transforming the Force: • Medical Readiness Review (MRR) 2004• Military to Civilian Conversions 2005

• Transforming Infrastructure: • Joint Cross Service work yielded fundamental re-shaping of MHS in BRAC 2005

• Joint markets in the National Capitol and San Antonio• Joint education and research facilities

• Transforming the Benefit: • Implemented benefits for Reserves, Medicare Eligible (over 65) 2003• Uniform formulary, federal pricing 2005• Sustain the Benefit campaign 2005

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Highest Priority Issues

• Transform the Force and Business• Joint Medical Command • MRR / MIL to CIV Implementation• AHLTA/TMIP Implementation• Performance Based Culture

• Transform the Infrastructure• BRAC Implementation

• Transform the Benefit• Sustain the Benefit Campaign

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Sustain the Benefit Campaign

• Objective: • Pass legislation and implement rule changes for implementation

beginning in 2007 to allow the Department to manage the benefit more effectively for the long term

• Save significant dollars ($11+ B) for the Department over the POM

• Original STB proposal met opposition but potential ways ahead identified

• Revised approach:• Retain cost share adjustment flexibility within the Department• Obtain appropriate indexing rates for future fee increases• Expedite GAO Study of MHS Costs• Maintain TRICARE Reserve Select program as currently structured• Obtain federal pricing for use in retail pharmacy• Allow DoD to implement phased-in premium adjustments in

FY2007

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BRAC Implementation

• Objective:• $3.6 B infrastructure re-engineering completed by 2011• Major restructuring in San Antonio and NCA • Creation of joint medical, education and research and

development venues• Transition organization and culture to joint operations

• $687 M shortfall despite efforts to reduce cost• Integrated implementation consistent with goal of

Medical Joint Cross Service Group and essential to achieve full benefit of joint facilities

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AHLTA Implementation

• Objective:• Fully digitize global health care with AHLTA• Enable medical surveillance, evidence-based medicine,

and effective health care operations

• Implementation is transforming the delivery of health care

• Pursuing health care and IT standards as part of a national effort

• Currently limited by differences in Service security and technology policies

• Sharing information in theater is the model

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Medical Readiness Review

• Objective:• Ensure right number and skill mix for future military operations• Execute current MRR by converting MIL to CIV• Implement on-going process to continue to define the active duty

operational requirement for MHS personnel

• Conversions create opportunity to optimize staff mix and capabilities

• Execution (rate and speed) of conversions cannot harm mission effectiveness • Ability to convert may depend on market conditions

• With expanding role of MHS in Homeland Defense and Civil Military operations, requirements may change

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Joint Medical Command

• Objective: • Improved performance and joint support for both

operational medicine and health care delivery• Alignment of authority and accountability• Appropriately embed J/UMC in an integrated

enterprise model

• Courses of Action are being reviewed by OSD, Combatant Commands and Services

• Options being analyzed for Senior Leader discussion and decision

27(DELIBERATIVE DOCUMENT: For discussion purposes only. Draft working papers. Do not release under FOIA) UNCLASSIFIED

Example of an Integrated Health System Model

Commander

SharedSupport

Operations

Education and

Training

MedicalResearch

and Development

Joint Health Care Delivery and

Force Health Protection Operations Command

TRICARE Health Plan Operations

Joint Medical Combat Development and

Training Command

Joint Command

Europe

Joint Command

Pacific

Joint Command

Central

Joint Command

Korea

Joint Command

West

Joint Command

East

SECDEF

University and Graduate Health Professions

Education

Institutional FHP

ASD(HA)

USD(P&R)

• Commander answering to SECDEF addresses legal concerns• “Non command” authorities vested in ASD(HA) in a DoD Directive, as with ASD(SO/LIC) and USSOCOM• “Health Plan” is ASD(HA) responsibility, Command focuses on service delivery

28(DELIBERATIVE DOCUMENT: For discussion purposes only. Draft working papers. Do not release under FOIA) UNCLASSIFIED

Integrated Health System (IHS)

Corporate Business “Unit” Approach w/ Shared Services

Readiness and beneficiary missions under a single authority

Services retain responsibility for recruiting, military development, and their organic/embedded medical forces (e.g. medical personnel on a Navy carrier)

All other medical support is “joint,” under the IHS Services provide support through a Component Command

structure Non-organic medical forces assigned to IHS IHS has health plan management and purchased care

responsibility

IHS has the training, education, RDT&E and shared services responsibility

Current sourcing responsibilities remain unchanged

Shift Your ParadigmsOld Paradigm Transformational Thinking

Why should we…. To Why couldn’t we…

Two competing missions, health care delivery and force health protection

To One mission, three interdependent themes

Meet requirements to staff facilities as echelons of care

To Shape the force to achieve agile modular capabilities

Service specific infrastructure To Jointly staffed facilities

Budget and rules based To Performance based management

End year with no money left To End year with savings and meet performance goals

Independent Service Medical Departments

To Interdependent Health Care Team

Beneficiary satisfaction surveys To Customer relationship management

By being unique and independent, ensure survival

To Being interoperable and interdependent assures efficiency, customer value and

survival.

Provider centered To Patient centered

Unmanageable costs, escalating benefit To Shape and sustain the benefit

Questions?

Current State of DoD Health Affairs