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[H.A.S.C. No. 107–32]








APRIL 10, 2002

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JOHN M. McHUGH, New York, Chairman
LINDSEY GRAHAM, South Carolina
JIM RYUN, Kansas
JO ANN DAVIS, Virginia
ED SCHROCK, Virginia
W. TODD AKIN, Missouri
JOE WILSON, South Carolina

VIC SNYDER, Arkansas
BARON P. HILL, Indiana
SUSAN A. DAVIS, California
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John D. Chapla, Professional Staff Member
Michael R. Higgins, Professional Staff Member
Richard I. Stark Jr., Professional Staff Member
Debra Wada, Professional Staff Member
Nancy M. Warner, Staff Assistant




    Wednesday, April 10, 2002, Fiscal Year 2003 Defense Health Program Budget: Current and Future Issues Facing the Program


    Wednesday, April 10, 2002


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    McHugh, Hon. John M., a Representative from New York, Chairman, Military Personnel Subcommittee
    Snyder, Hon. Vic, a Representative from Arkansas, Ranking Member, Military Personnel Subcommittee


    Baker, David J., President and Chief Executive Officer, Humana Military Healthcare Services
    Butler, Benjamin H., The National Military Veterans Alliance, (The National Association for Uniformed Services)
    Carlton, Lt. Gen. Paul K. Jr., Surgeon General, Department of the Air Force
    Carrato, Thomas F., Executive Director, TRICARE Management Activity
    Cowan, Vice Adm. Michael L., Surgeon General, Department of the Navy
    McIntyre, David J. Jr., President and Chief Executive Officer, TriWest Healthcare Alliance
    Nelson, David R., President, Sierra Military Health Services, Inc.
    Peake, Lt. Gen. James B., Surgeon General, Department of the Army
    Schwartz, Sue, DBA, RN, The Military Coalition, Co-Chair, Health Care Committee, (The Retired Officers Association)
    Storeygard, Alan, MD, Jacksonville Medical Clinic
    White, William, Chief Executive Officer, Pratt Medical Center
    Winkenwerder, Hon. William L. Jr., MD, MBA, Assistant Secretary of Defense for Health Affairs
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    Woys, James E., President and Chief Operating Officer, Health Net Federal Services


Air Force Sergeant Association
Baker, David J.
Butler, Benjamin H.
Carlton, Lt. Gen. Paul K.
Cowan, VADM Michael L.
McIntyre, David J., Jr.
Nelson, David R.
Peake, Lt. Gen. James B.
Schwartz, Sue, DBA, RN
Storeygard, Alan R., MD
White, William L.
Winkenwerder, Hon. William Jr.
Woys, James E.

Claims Processing Cost

Mr. McHugh
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Mrs. Sanchez
Dr. Snyder


House of Representatives,
Committee on Armed Services,
Military Personnel Subcommittee,
Washington, DC, Wednesday, April 10, 2002.

    The subcommittee met, pursuant to call, at 2 p.m. in room 2118, Rayburn House Office Building, Hon. John M. McHugh (chairman of the subcommittee) presiding.


    Mr. MCHUGH. We will call the hearing to order. We understand Mr. Snyder—as usual, as the head of this Committee structurally, I understand there is a vote at 2:15. So he is awaiting that, as understandably he might. But I suggested, and it has been agreed to, that perhaps we could open the hearing and begin the process prior to our actually having that vote so we don't have to come back and begin to reinvent the wheel, so to speak. So let me welcome you all here this afternoon. We appreciate your presence. Today the Subcommittee will hear testimony about a wide range of health care issues, including the Defense Health Program, DHP, budget, TRICARE program execution, TRICARE For Life implementation (TFL), potential TRICARE contract changes, as well as force protection and quality-of-life issues, obviously a broad range of very important and very timely topics.
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    At the risk of stating the obvious, since September 11 of 2001, this nation has been at war; and as we all know, the United States military forces are engaged in operations around the world. Our men and women are fighting and dying and they may be doing just that for some time to come. These realities impart an even greater need and even greater meaning to the work of this Subcommittee and the work done by all military health care providers worldwide.
    As all leaders know, no component of military force is more valuable or valued than the men and women who comprise it. Given the courageous work they are asked to perform, it is incumbent upon this Subcommittee and the entire Congress to ensure that our active and Reserve military forces, their dependents and retirees, who have contributed the great successes that form the military history of this country, are properly supported at home and abroad. No single aspect of this support is more important, valued or indicative of the nation's commitment to them than health care.
    Today, this Subcommittee will examine the adequacy of the fiscal year 2003 Defense Health Program budget. Importantly, this is the first year of accrual payments to the Uniformed Services Retiree Health Care Fund. I supported the Fiscal Year 2001 National Defense Authorization Act and its provisions for such a trust fund. And I commend the Administration for seeking to realistically budget for the future cost of retiree health care. However, I think all of us have been surprised by the budget figures arrived at by the board of actuaries. We want to hear more about these budgetary factors, as well as the allocation of the DHP within the Department.
    Perhaps most important to the beneficiaries of the military health care system are the execution of TRICARE and the implementation of TRICARE For Life. These programs provide a generous health benefit to a very deserving population. And I want to commend the work of and the partnership between the Department of Defense, the military services and the managed care support contractors in establishing these programs.
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    I also want to thank the beneficiary groups for their yeoman work in helping communicate with the beneficiary population. Together, these organizations have made historic advancements in delivering high quality health care. However, improvements in access, cost containment, Administration, provider participation and benefit delivery remain possible in these programs, and we need to hear more about how progress in these areas can best be achieved in the future.
    We particularly need to hear what changes the Department would like to make in the next generation of TRICARE contracts and what flexibility is needed to make those changes. Foremost among consideration of such changes must be the impact upon the beneficiaries themselves. There are also force protection issues facing our armed forces around the world. We cannot afford to repeat the mistakes of the past. Health surveillance is a leadership and a medical imperative.
    I hope our witnesses can assure those of us on this Subcommittee that, for them, force health protection is a high priority that is adequately supported by the Commanders-in-Chief (CINCs), and that requisite resources are available to perform the mission properly.
    Finally, uniformed health care provider recruitment and retention challenges require our attention. I look forward to hearing from the service surgeons about what help they need to be able to compensate the high quality health care force needed to support the force structure. And I hope our witnesses will attempt in their statements to review these issues and address them as directly as possible in their oral statements and in response to Subcommittee members.
    At this point, I would yield to Dr. Snyder on—who is, of course, as I mentioned, not here. Let me say in light of housekeeping, we have three panels comprising 13 witnesses; and obviously, as I mentioned, the topics are very important. We would like to give each witness the opportunity to present his or her testimony and each member, in turn, an opportunity to question the witnesses. And I would respectfully remind the witnesses that if at all possible, we would like you to summarize the high points of your written statement preferably in about the five-minute range. I assure you your written comments and statements will be made part of the hearing record in their entirety. We have reviewed them and I know that there is a great deal to learn from them.
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    Finally, a statement by the Air Force Sergeants Association has been submitted for inclusion in the record, and I would ask unanimous consent that they be entered into the hearing record. And I don't intend to object, so that will be so ordered
    [The prepared statement of Mr. McHugh can be found in the Appendix on page ?.]

    Mr. MCHUGH. As I said, we will go vote and then we will introduce the first panel. So, with your patience, if you could stand by until we return, we would deeply appreciate it.
    Mr. MCHUGH. We will resume the hearing. Thank you for your patience. As we knew he would, the ranking member, the gentleman from Arkansas, is here, Dr. Snyder; and I would yield to him for any opening remarks he would like to make.
    Dr. SNYDER. Thank you, Mr. Chairman. I apologize for being late. I was on the floor, thinking we were going to have a vote, and it was delayed a little bit.
    One of the staff members made a comment that I have to give an opening statement today because we have two constituents here, Dr. Alan Storeygard and Dr. Paul Storeygard, here in the audience. But, in fact, my constituents back home like me better when I don't make long statements, so I won't.
    So I appreciate your being here. This is an important hearing to us all, and I look forward to hearing your statements.
    [The prepared statement of Dr. Snyder can be found in the Appendix on page ?.]
    Mr. MCHUGH. Thank you. We like you better too when you are short, a lesson I should learn myself. Before I introduce the first panel, I would just like to note this is the first time that Dr. William Winkenwerder and Mr. Tom Carrato have appeared before the Subcommittee. Gentlemen, welcome. Thank you for being here today. And we hope your inaugural experience is relatively painless. But thank you for being here.
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    Let me welcome the first panel. As previously mentioned, the Honorable William Winkenwerder, who is Assistant Secretary of Defense for Health Affairs. Mr. Secretary, thank you. Mr. Thomas Carrato, Executive Director, TRICARE Management Activity (TMA). Thank you for being here. Lieutenant General James Peake, Surgeon General of the United States Army. General, thank you. Vice Admiral Michael Cowan, Surgeon General of the Department of Navy. Admiral, thank you for being here. And Lieutenant General Paul K. Carlton, Jr., Surgeon General, Department of the Air Force. General, thank you as well.
    Gentlemen, as you heard me say prior to our short recess, we do have all of your statements in their entirety in the record on a unanimous vote taken moments ago. So to the extent you can summarize, it would be greatly appreciated.
    And with that, Mr. Secretary, we would welcome the opportunity to hear your comments.


    Dr. WINKENWERDER. Thank you, Mr. Chairman. Mr. Chairman, Congressman Snyder and distinguished members of the Subcommittee, thank you for the opportunity to appear before you today. I am pleased to be here with Tom Carrato, the Executive Director for the TRICARE Management Activity and the Surgeons General. As you requested, I will provide a brief verbal statement on behalf of the Department and the written statement has been submitted for the record.
    First, I want to take a moment to acknowledge the heroic and exemplary contributions our military health care professionals are making around the world today as we are in this hearing. Our military medics are engaged in a number of diverse and challenging activities in support of the war on terrorism, both here and abroad.
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    In Afghanistan, U.S. and coalition medical professionals are providing lifesaving care to our troops and allies in a very austere battlefield situation. In Guantanamo Bay, Cuba, our Navy medics are delivering high quality medical care for a number of the detainees; and I might add that though this Administration, this country, has been criticized for care of those detainees, I feel that that is not warranted and not fair. The care that those men are receiving is high quality medical care that would be commensurate with any care that we provide not only to prisoners but even to our people.
    In the United States, our health professionals work closely with other federal agencies and the Office of Homeland Security in shaping our capabilities to respond to biological and chemical warfare threats here at home. And of course we also continue to provide the finest medical care every day throughout the world to our active duty personnel, their families and our retirees and their families. Everything we do within the military health system is designed to support our warfighters from preventive medicine activities to complex multispecialty care requirements for our most severely ill or injured patients.
    The support system includes the design of TRICARE. TRICARE was designed to improve continuity, quality and access to care where we provide our beneficiaries in both military hospitals and clinics $7 billion in care we purchase through the private sector every year. In the seven years since TRICARE was first introduced, this effort has proved to be very successful.
    Virtually every single indicator of success has moved in the right direction. We have had increasing beneficiary satisfaction, increased perceptions of quality-of-care, more timely access to care, increased use of preventive services and decreased use of emergency rooms. Cost growth has remained within or less than overall increases in health care costs seen in the private sector, and that has happened without increasing out-of-pocket costs for beneficiaries.
    And we have implemented a new set of health care benefits, particularly the establishment of TRICARE For Life, which includes a prescription drug benefit for our Medicare-eligible beneficiaries, which is the first, I might note, the first benefit of its type for seniors in America. We are proud of these successes and yet there is still room, much room for improvement.
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    Our current private sector contracts under the leadership of experienced and committed CEOs, who you will hear from later today, have provided us with a strong foundation on which we build. As we move forward, we are building upon both the successes and the lessons learned, and there have been some lessons learned over the past seven years.
    Over the years, we have placed a number of new requirements on the existing contracts. Very often our requirements have been prescriptive. They have added costs and not always provided the proper incentives for either direct care, system performance or contractor innovation.
    The next generation of TRICARE contracts will provide these incentives and will address these problems. So that the government may be a better business partner, we will adopt the best practices employed in the private sector. In doing so, I hope to invite greater competition from the health care marketplace. Financial incentives are a powerful tool to enhance contractor performance. In the next set of contracts, I expect to retain some form of financial risk-sharing that rewards outstanding performance. However, we will also look to fee-based rewards for achieving certain performance targets—for example, in the area of beneficiary satisfaction or efficiency of claims payments. Finally, I will ensure that our new contracts enhance quality and continuity of care for our beneficiaries and minimize any disruption in beneficiary services.
    Our goal is to fix and improve upon things that we can make better and not to solve problems that don't exist. I believe in rewarding demonstrated improvements in performance. That is very important. Our actions will continue to improve the health care delivery system for our patients, improve the predictability of our health care budgets, which has been a problem in the past and establish the military health system as one of the preeminent health systems in this country. I truly believe that we have a model to be one of the best for the rest of the country, to actually be a model for the rest of the nation, and I am very committed to seeing this happen. I want to assure the Committee that I will continue to consult with you regularly as we proceed in the development of our TRICARE contracting strategy.
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    The President's budget for defense health care for fiscal year 2003 is based on realistic cost estimates for providing health care benefits to the Department of Defense (DOD)-eligible populations and improving medical readiness. It includes appropriate growth assumptions for both pharmacy and private sector health care costs to reflect our recent experience, which mirrors the rest of the marketplace, and I think—as all of you know, we have seen cost increases and cost escalations the last two or three years that were unlike the relatively flat inflation that occurred in the early to mid–1990's. So we have to recognize that and account for that.
    As we strive to raise the performance of our health system, we also are reaching out to other federal agencies to improve collaboration and coordination. And, in particular, we are working closely with the Department of Veterans Affairs (VA) and with several agencies of the Department of Health and Human Services, including the Centers for Disease Control (CDC), the National Institutes of Health (NIH), and the Food and Drug Administration (FDA). DOD's collaboration with the Veterans' Administration has a strong historical foundation. Much has been accomplished, but there truly is much more that can be done.
    We are investigating the means by which we can increase our collaboration on many fronts, and among these are greater VA participation in TRICARE contracts and networks, simplified billing procedures for shared services so that we use sort of the same standard charge master, which we don't have today; increased cooperation on our capital asset and construction plans, so that we plan together and we don't build in ways that duplicate services across our populations; greater joint activity in pharmacy and in procurement; and information technology (IT), improvements that will permit the appropriate sharing of electronic patient records. The focus of these efforts will be to identify those opportunities that are congruent with our respective missions which are different, but will benefit both the beneficiary and the U.S. taxpayer.
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    Finally, to elevate the performance of our health system, we must continue to recruit and retain the best qualified medical professionals and provide a clinically rewarding practice environment. We have initiated several efforts to better understand the reasons for staying or leaving the service and what factors would convince one to remain in the military. We are evaluating approaches to ensure that we attract and retain the best people, including improvements in the ways we administer pay and share personnel resources across the three services.
    The Surgeons General and I just met this morning on this very issue, and I plan to share these ideas with the Congress in the near future and look to you for your support and your guidance on this important issue.
    As the military health system continues to meet its many missions and challenges, I am certain that we will emerge even stronger. I want to thank you for this opportunity to appear on behalf of the military health system and the over eight million people that it serves, as well as the extraordinary men and women who make it the vibrant, innovative and high quality system that it is.
    I am ready to answer any questions that you might have, and I look forward to working with you.
    Mr. MCHUGH. Thank you, Mr. Secretary. I appreciate your comments.
    [The prepared statement of Dr. Winkenwerder can be found in the Appendix on page ?.]
    Mr. MCHUGH. We will now continue through the rest of the panel members. Mr. Carrato, I understand you don't have a prepared statement, are there any comments you would like to make prior to our moving on?
    Mr. CARRATO. I would like to underscore all of the comments that Dr. Winkenwerder provided.
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    I think we have made tremendous progress in moving TRICARE toward becoming a truly world-class health care system. We have implemented some tremendous programs, using the authorities that Congress granted us, most notably TRICARE For Life, and look forward to building upon the successes that Dr. Winkenwerder enumerated and, again, making sure that we are the leader in terms of health care systems. And I look forward to your questions. Thank you.
    Mr. MCHUGH. Thank you, sir. Lieutenant General James Peake, Surgeon General of the United States Army.


    General PEAKE. Chairman McHugh, Congressman Snyder, distinguished Members, I appreciate the opportunity to appear before you today representing Army medicine.
    So many things have changed since our last appearance. Certainly, the 11 September attack, the war on terrorism has reinforced the importance of those that we serve, the men and women in uniform. We have put soldiers in harm's way.
    And I know, Mr. Chairman, you visited those great 10th Mountain Division soldiers at Walter Reed, wounded on a Monday; operated on at Bagram by a forward surgical team; stabilized at a combat support hospital in Uzbekistan; transiting through the Air Force hospital in Incirlik and the hands of Air Force critical care teams; reoperated on at Landstuhl Army Medical Center; and by Saturday night in the hands of the team that you met at Walter Reed. That is a pretty good, integrated health care delivery system about which we can be very proud—high standards.
    Nothing could underscore better the importance of the direct health care system that we spoke about the last time we were here, projecting tailored teams linked by common standards, by training and linked digitally with clinical information, across that continuum of care.
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    And then there was 15 October, letters with anthrax, deaths of innocent people. That sobered the nation about a threat that we in the military had been worried about for some time. And our institutions, the Institute for Infectious Disease, the Armed Forces Institute of Pathology, the environmental experts at the Center for Health Promotion and Preventive Medicine came through as gold standards for expertise in science. Deeply—a deep bench, really kind of unique, serving the nation, complementing the interagency response in that endeavor.
    And even as all this goes on, we are getting positive feedback about the TRICARE For Life package of benefits that came out of Congress, which have been implemented over the course of this last year. There is a real sense of credibility and promise kept out there. Recruiting and retention of the force have been good and, I believe, positively affected by this, not only in the active but in the Reserves as well. I recently met with General Plewes, the head of our Army Reserve, and General Schultz, the head of our National Guard, who reinforced that point about their interactions with the force.
    The TRICARE Prime Remote for family members is another very important provision that reaches across the components and is a step toward equalizing the benefit. With the flexibility in funding this year, recognizing that a commodity like pharmacy grows in parallel to the civilian health care industry experience rather than at some DOD inflation rate—the opportunity for venture capital investments—I believe we have created a more stable business environment in which our commanders can operate effectively.
    We have funds earmarked for advances in medical practice, the kinds of money that we have used for putting eye surgery, laser eye surgery for our soldiers, which is a combat enhancement, and getting a foot in the door on emerging technologies like virtual colonoscopy and endovascular stinting. Certainly we look forward to a continued recognition of these kinds of resource requirements. That is part of ensuring that our most precious resource, our people, stay with us.
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    Men and women of skills and values like Dr. George Peoples, a Walter Reed oncologic surgeon, now with the forward surgical team in Afghanistan who 1 day saves the hands of one of our great soldiers wounded in Operation Anaconda and later saves the hands of an enemy soldier. Or Lieutenant Colonel Ron Smith, 10th Mountain Division surgeon who talks about applying the lessons learned from the Soviet experience. At least 60 percent of Soviet casualties, he says, were from disease rather than battle injuries; and we have escaped a lot of problems through preventive medicine and rigorous enforcement of hygiene standards.
    Well, sometimes Army medicine may seem sort of mundane—hygiene, education—but they are fundamentals.
    Other times, Sergeant 1st Class Corey Lamoreaux, a Special Ops flight medic shot down, badly wounded himself—I mean, hit 7 times, 4 penetrations—continued to care for his buddies in direct casualty evaluation 14 hours before they could have him extracted. He saved lives and limbs of his crewmen.
    You may know that in May the Medal of Honor will be awarded posthumously to Captain Ben Selman, a dentist, for his heroism in Korea.
    It will be a while yet before the heroism of this current war is fully recognized, but I assure you, though, the tradition of selfless service of caring beyond the call of duty continues. It is the totality of this that is Army medicine, not just for-profit HMO, and I thank the Committee for understanding that so very well and for your constant and continued support of soldiers and their families.
    Mr. MCHUGH. Thank you, General.
    [The prepared statement of General Peake can be found in the Appendix on page ?.]
    Mr. MCHUGH. Vice Admiral Michael Cowan.

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    Admiral COWAN. Thank you Chairman McHugh, Representative Snyder, distinguished Members. On behalf of the men and women of Navy medicine I wish to thank you for the opportunity to share with you the state of Navy medicine.
    I have also submitted a written statement; in that I tell you about the great things that are going on in Navy medicine. Today, I would like to particularly highlight our readiness and accomplishments in my verbal remarks.
    Over the past year, Navy medicine has successfully responded to many challenges placed before us, and we stand ready to face a period of unprecedented change for the entire nation. Since becoming the Surgeon General last summer, I have carried the message and emphasized the message of force health protection; that is, our job is, always has been, and always will be to produce hyper fit, hyper healthy sailors and Marines; to protect them from all possible hazards when they go in harm's way; to restore the sick and injured, while at the same time caring for their families at home; and finally to help a grateful nation thank its retired warriors by providing health care for life. The events of September 11 have only served to strengthen my conviction that this is the correct course.
    Our success and readiness are today epitomized by the sailors of the fleet hospital that General Peake mentioned at naval base Guantanamo Bay, Cuba. I recently visited the base, that we affectionately call Gitmo, where I was impressed but not surprised by the professionalism and morale of our people there.
    With the help of SEABEES, these sailors cleared land, set up a fleet hospital and provide ethical and humane treatment to the Taliban and al Qaeda detainees. It is inspiring to see these sailors provide high quality care to a population of over 300 detainees and watch them endure the hatred of their patients yet never complaining or comprising patient care nor their professionalism.
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    It is neither luck nor coincidence that the men and women of this unit responded so quickly and professionally. It is because they continually train in order to be prepared. And this unit is no different from any other of the 100-plus Navy medical deployment platforms, nor is it different from the 50,000 medical professionals that carry out the mission of Navy medicine every day.
    From the first moments following the attacks at the Pentagon and World Trade Center, the readiness and dedication of our professionals has been repeatedly demonstrated and continues as we speak.
    Let me quickly add that our success could not have been achieved without the support of Congress. There have been great strides in resourcing, and the future promises further fiscal stability; and for this you have our gratitude.
    Congress has been further helpful in defining the military health benefits through legislation, and in the first full year of the National Defense Authorization Act of 2001 both quality and access are increasing and the health benefit continues to be the No. 1 quality-of-life issue for retention in the Navy. Your continued support of stable and adequate funding will ensure the continuation of this high quality in the right place and at the right time.
    I would like to add that as we work to meet these challenges, we must remember the crucial role of our health care providers. Retention continues to be a concern for both enlisted and medical specialties. With your help, we are addressing our facility and equipment needs, which are large morale issues for our providers; however, we are still behind the mark in addressing pay as compared to the civilian sector. I ask your assistance in closing the pay gap in an effort to help retain clinical specialties.
    In closing, I again thank Congress for supporting the military health system with the defense health system funding, which has, in turn, enabled us to respond to unexpected and ongoing challenges. This war on terrorism is asymmetrical. We are striking back asymmetrically, politically, economically socially and militarily. And I believe in the end, the military contribution will be paramount to success.
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    In keeping with our new motto, Navy medicine is steaming to assist our comrades in arms. Thank you for your time. I look forward to your questions.
    Mr. MCHUGH. Thank you very much, Admiral.
    [The prepared statement of Admiral Cowan can be found in the Appendix on page ?.]
    Mr. MCHUGH. Lieutenant General Paul Carlton, Surgeon General, Department of the Air Force.


    General CARLTON. Mr. Chairman, Congressman Snyder, members of the Subcommittee, it is an honor to appear before you again this year.
    Clearly the world is very different than our last meeting in July. I told you in my oral statement then that the growing homeland defense requirement had not yet been fully acknowledged in our country. While I believe the events of 11 September have acknowledged that we have a homeland defense contribution to make. We had practiced the 11 September attack on the Pentagon in May, and so when it occurred, we were well schooled, we had our lessons learned and performed and saved lives as an Army-Navy-Air Force team. Our modular teams were in place, alongside our Army-Navy colleagues, within minutes. Within 24 hours of the 9/11 attack, we had 500 medics and 400 hospital beds deployed to McGuire Air Force Base just outside New York City. We had several hundred deployed to support Washington, D.C. We had critical incident stress management teams in place immediately, and the Pentagon labored to prevent future complications for several months thereafter. Eleven September truly was a wake-up call for the country.
    In October, we deployed personnel on our biological assessment teams with our sister services to assist the Centers for Disease Control and the New York City Public Health Department in their testing of suspected anthrax samples. With a 100 percent correlation between our high technology pathogen identification system, that gives an answer in an hour, and subsequent culture, which takes days, we were well pleased with the technology we had been working.
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    Today, the majority of our medics deployed on the ground in Operation Enduring Freedom are Air Force medics. We have a large number of Air Force members deployed. They are doing an incredible job alongside our sister services and our allies to care for our young men and women who are in harm's way. They are proving the validity of our light modular expeditionary medical systems, known as EMEDS.
    The Special Operations command surgeon has said that were it not for those teams that were in place at hour one, we would have lost many more soldiers, sailors and airmen than we have lost. The Central Command surgeon stated, and I quote, ''Light, lean and modular is the way to go.'' We will see more small modular medical teams far forward where they can save lives. And critical care transport and the air evacuation system works and we love it. These are strong testaments from the people on the ground who are our customers. Our investment in technology, such as EMEDS and the rapid pathogen identification, is paying huge dividends for our country. We will continue to test and improve our capabilities.
    Another readiness focus we currently have is to make sure that our civilian colleagues do not have to reinvent the wheel. When it comes to caring for mass casualties and biological and chemical casualties, we are partnering in education and training in joint military civilian (MILCIV), exercises across the country at this time and being warmly received.
    We must also invest in our personnel. I told you in July that we were facing a personnel manning crisis. We are experiencing shortages in all corps. Our losses have been greater than our gains for the past three years. We are pursuing many initiatives to alleviate the problem, but it is a very serious situation and we appreciate your support in seeking its remedy.
    The Air Force medical service recognizes that meeting these challenges and realizing our vision of global engagement means executing a strategy that provides a vital and interdependent link between our readiness and our peacetime missions. As we have briefed your staff, our long-view strategy provides a bottom up microscopic analysis of the way we do business across the Air Force medical system. With a focus on readiness requirements, then on clinical currency, followed by best business practices, we seek the proper balance that will move us into the future.
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    We know that we have a great deal of work ahead of us, but believe this gives us a sound strategy to ensure we have the best people and the right numbers in the right places with the right training to care for our people around the world. That is our job, and it is our commitment to you and to this nation.
    I want to personally thank you for the support and the help that you have given us over my three years as the Surgeon General; and I look forward to your questions.
    Mr. MCHUGH. Thank you very much, General Carlton.
    [The prepared statement of General Carlton can be found in the Appendix on page ?.]
    Mr. MCHUGH. I thank each of you for being here today, for your comments and, equally important, for your services. Mr. Secretary, you mentioned in your comments about the new phase of next-generation TRICARE contracts and mentioned some of the objectives, which was helpful. I am sure you have been made aware that when the Congress last year contemplated, pursuant to DOD requests, a longer and broader range of flexibility in execution of those new contracts, it caused some concern both within the House and Senate, and amongst the providers as well as the beneficiary population. Those of us on this Subcommittee will have the responsibility of reviewing whatever direction it is you choose to take. I am just curious, beyond your comments, if you would be able to give us a little bit more direction as to where you see yourself going in an unbundling of administrative health care services, different contractors responsible for separate functions, et cetera, et cetera—flexibility, mandated fixed price contracting, et cetera. Any kind of hints you may be able to give us as to what we may expect to see? And I will leave it at that for now.
    Dr. WINKENWERDER. The answer is yes, and let me try to address your questions. You were correct to identify the fact that there were some concerns last fall, and I think that those were justifiable in the sense that we had not communicated as effectively as we needed to with respect to our future plans. I was also concerned that we had possibly not solicited all the input we needed in order to chart the best path forward.
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    We have spent the last three or four months in an active process of consideration of multiple factors that relate to this new round of contracts, realizing that they are very important, because they represent not just $7 billion in a single year, but if you think about the inflation rate of health care, if you think about the importance attached of taking care of many millions of people and you look at that over several years, it is a big issue. So we want to do it right.
    We, I think, have had some very good feedback coming not only from the contractors themselves, but from the beneficiary community that elaborated upon the concerns that they have. And what I can tell you today, in addition to what I said in my prior statement about sticking with some sort of risk-based contracting approach, is that we do not intend—do not intend to unbundle the health care management of the networks and the hospitals from the administrative components of paying claims and sort of financial back-offs.
    And what we are—what we will propose is a concept that is largely in keeping with the current type of role that the managed care support contractors, we call them, that we work with today, largely in keeping with the kind of current role they have today serving as innovators of care for the care that we purchase outside the military treatment facility (MTF) environment.
    There is one exception to that, and that is in the area of pharmacy. I think everybody recognizes that pharmacy is the fastest growing component of health care. And I have spent the last ten years or so working in the private sector, working in health care management and, in particular, in the area of managed care and health plan management; and I think it is fair to say that that—that the private sector has pretty much come to the conclusion that pharmacy benefits are managed through—with the assistance of a pharmacy management company. And so we plan to move forward with that being carved out, if you will; and have looked at the idea of establishing a large national contract for the retail pharmacy, as well as for the mail order pharmacy. Of course, we already have our internal pharmacy. That is the major change.
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    We also expect to move forward with one single contract that could do all of our marketing and member education materials, so that we have a common look across the whole TRICARE program.
    I think these are ideas that the leaders of the plans that we currently work with, if you will hear from them later today, that they would be in agreement with these ideas. We didn't move forward just because we thought they would agree with them, obviously, but I think they are good business practices and get us to the place we are going. So that is sort of a broad summary, and I will be glad to answer any further detailed questions.
    Mr. MCHUGH. We will be, obviously, anxiously awaiting the details as you formulate them. I don't mean to be unfair. Obviously, you can't answer questions with specificity that have not yet evolved.
    I think it is vital, and I commend you for reapproaching the issue in terms of better communication and input by both the providers whom we will hear from. And I share your optimism at this point toward being able to come to the table with an agreed-upon or at least ''generally acceptable from most perspectives'' proposal, but also the beneficiary groups that we will hear from, as well, because at the end of the day those are the folks we are attempting to serve, as you know so very well.
    TRICARE For Life, I share Mr. Carrato's comments that it is a very exciting and very revolutionary plan; and I think all of us share the enthusiasm of the folks outside of the Congress, who really think this is a long time coming and hold a great deal of optimism toward its ultimate success. And as I said in my opening statement, I think if it is not historic, it is certainly remarkable as to how all the parties worked together to bring us up to the position it is in today and given the challenges and the very narrow timeframes that were provided. However, a health care plan, no matter how good it is on paper, is only as effective as the availability of physicians.
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    Now, I am aware that the General Accounting Office (GAO), and TMA and Center for Naval Analysis and Institute for Defense Analysis have done studies that generally say physicians and the physician participation level is generally adequate. But my dad used to say, if you put one foot in a bucket of ice water and another foot in a bucket of boiling water, on average, you are comfortable. Averages tend to skew the true picture at some time.
    And let me first turn to our Surgeons General, and let me start with General Peake. Are there areas—and let me get parochial for a moment; for example, Fort Drum, I have heard, had some significant problems with respect to physician availability—plans that you are aware of, and also, of course, General Carlton. How significant do you find those shortages, if at all?
    General PEAKE. Yes, sir, we have—at Fort Drum we have a good partnership with the local hospitals. Samaritan, as you know, did a tremendous job in taking care of the short round casualties that we had recently. When you talk to the local people, some of the feedback we get is that for some specialty care, they have to drive to Syracuse because we have not been able to negotiate the appropriate arrangements with the specialists within the local community, things like dermatology, as an example. And so there are those kinds of considerations that though technically it is available, it is a pretty good drive to Syracuse.
    Mr. MCHUGH. Particularly in February. General Carlton, problems out there from the Air Force perspective?
    General CARLTON. We are generally not in the most population based areas, and there is a resistance to managed care that is remarkable in some areas of our country. We have actually had to reopen hospitals that had been closed because we could not obtain providers in a local area. And so it is a problem that all of us face, and we try to do that and not hassle those great American patriots. But it is a significant problem for us.
    Admiral COWAN. There are economic microcosms where our general formulas don't fit well; they tend to be in rural areas, remote, and we have difficulties. We work through those on a constant basis.
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    Mr. MCHUGH. Mr. Secretary, my understanding is that generally those are challenges that are faced in rural areas.
    Now, there are some flexibilities that—and, gentlemen, Surgeons General, if I am stating something here that you don't agree with, please jump in. At least in my personal, parochial experience it has generally been a problem of reimbursement, or at least that is what they attribute it to. The physicians believe that the administrative hurdles of participating are costly, cumbersome; and also the reimbursement level is simply not sufficient under Medicare rates to make that an attractive enough option for them. We provide flexibility in that.
    To what extent, Mr. Secretary, do you see that flexibility is useful? To what extent do you use it? Are there other things that you feel this Congress, this Subcommittee, might be doing to support increasing the availability of physicians for planned participation in areas like those?
    Dr. WINKENWERDER. Yes. Let me answer that, first, I do want to properly characterize this issue, at least to my—to the best of my understanding; and that is, our participation rate is the highest it has ever been, and it is—and Mr. Carrato could correct me if I am wrong about this—but it is higher than Medicare, I believe. It stands at a pretty high level. So I think we have to look at that, at least as a broad barometer; it is not a perfect indicator, but it is a general indicator. I would be concerned if it was going down instead of going up.
    That said, I would concur with the comments that we have here that in isolated areas—and I think it is particularly in rural areas that there have been and there are problems. It is hard to put one explanation on all of them; I think it could be different things in different areas.
    We do have some authority to address those issues now. We have used it. And I am committed to looking at this issue to make sure that it doesn't become a problem or become a widespread problem.
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    And what I would suggest, or ask, maybe if—I would like to consult with our team and if we have some specific ideas, we will get back to you and provide those to you. We will get back to you in any event, but I think I am going to turn to Mr. Carrato for a second to see if he has anything to add to that.
    Mr. MCHUGH. Mr. Carrato?
    Mr. CARRATO. Yes, Mr. Chairman. We have been given some authorities, and we obviously need to be judicious in applying those authorities. We are working with our managed care support contractors and also listening to providers and provider groups as they communicate with us about concerns about reimbursement levels. So, as Dr. Winkenwerder said, you know, we understand there are some issues out there. We want to explore them. We do not want this to become, you know, a tremendous problem, but as a team, our providers, our managed care support contractors, the Surgeons General, we need to address this and see if we cannot resolve it with the existing authority we have.
    Mr. MCHUGH. Well, I appreciate that, and it is true. You have used the flexibility, but I think it is fair to say you have used it very sparingly, and if I can read a bit more into Mr. Carrato's words, as he said, you are worried about the precedent of going to 115 percent, for example, and all of a sudden that becomes a standard instead of an exception, and I accept that. But Medicare faces certain similar challenges in which they take a regional approach. But at the end of the day, however it is done is less relevant to me than something is done, and I guess the bottom line there is that to the extent that greater flexibility or options are necessary, certainly those of us on this panel that hold primary initial responsibility for that would welcome the opportunity to work with you. So if you could pursue that and get back to us to the extent you feel it is necessary, it would be appreciated
    [The information referred to can be found in the Appendix beginning on page ?.]
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    And I apologize to my colleagues for taking so long. Dr. Snyder.
    Dr. SNYDER. Thank you, Mr. Chairman. I am actually going to continue in the sustained general area of provider participation. I was a family doctor. I still am. We just do not see patients now. But I do not know, for 15 or 18 years I never owned my own practice. I always worked by the hour for someone else. You walk away whenever the shift ends, you walk away. Folks like Dr. Storeygard sitting out here, you know, that is not true for a lot of physicians around—you know, they have to worry about the bottom line. And so some of the questions I want to ask relate to these, you know, small business people out there that we call provider groups or physicians or nurse practitioners or whatever they are.
    Mr. Secretary, on your written statement on page four, you talk about the new generation of TRICARE contracts (T-NEX). You talk about advice from the industry. As a family doctor, we always get apprehensive when we hear the word industry being applied to our industry, but who is included in the industry? Did you sit down with groups of physicians from rural areas of no more than five or eight per group and sit down and talk to them, what these contracts are like?
    Dr. WINKENWERDER. When we speak about the industry, we generally mean the—those entities with whom we have worked with directly. So, in other words, the private sector organization, like the ones you will hear from today, Humana Foundation, et cetera, as well as the pharmaceutical benefit management companies. We have held an open forum really for all—anyone who would wish to come to provide—to provide feedback.
    Dr. SNYDER. I would really encourage you. My definition of the industry in my experience is not the third-party administrators. My definition of the industry is the people who are providing the care to patients, and I would encourage you all to be meeting with some of them on a regular basis, particularly if you have already identified—everybody out there has identified problem areas in rural areas and I assume that includes both the doctors and hospitals and nurse practitioners and I would encourage you to be going out there and sending folks to find out why the hell things are not going well.
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    The—another specific issue that—again, from advice from an industry, is that the industry that has advised you all that your contractors ought to have privacy clauses within the contracts so that hospitals and the physicians involved with these groups cannot openly discuss what the terms of those contracts are. First of all, is that a fair characterization of the contracts, that they do have such privacy clauses?
    Dr. WINKENWERDER. I am going to turn to Mr. Carrato. I am not aware of things that are—we have a procurement process during the time in which contracting negotiations take place. That information is very tightly and closely held, and that is obviously to protect many people's interest and to ensure that the fair process—.
    Dr. SNYDER. I understand it. So if you go into a community and offer the hospital—''Our top dollar for you is going to be 50 percent of Medicare,'' that the hospital would be violating those policies to call their Member of Congress and say, ''You will not believe what they are—.''
    Dr. WINKENWERDER. No, no. I would not view that as, you know, confidential. I am talking about large-scale agreements between the government and a private sector entity that we work with. Understand that all of these kinds of contracting arrangements you are alluding to, I believe, are between our intermediary, our representatives who are the managed care contracting companies, the health plans in Humana, Foundation, et cetera, TriWest, who then contract with the local hospitals and doctors and laboratories and so forth. We believe that—and I think they would—I will let them speak for themselves, but that we provide an appropriate level of oversight to their activities and to how they conduct their activities to ensure that they are fair—fair-minded, appropriate.
    Dr. SNYDER. When you are talking about the contracts, and I think it is great that you are—I agree with the Chairman's comments that, you know, four years ago we were—you know, military retirees were beating up on us and now they are bragging on us, and I think it is because of the work you all do, and obviously you are looking ahead.
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    When you are talking about the structure of the next contracts and how these things are going to be—the business is going to be conducted, again, talking about the advice of the industry, are you all giving consideration to doing away with preauthorization as a requirement? You are talking about burden on physicians and rural physicians and, I mean, it seems to be the standard that industry is moving away from preauthorization, that in fact it did not save much money but created a lot of headaches for everyone.
    Dr. WINKENWERDER. I think it is correct the industry is moving away from that, and we will be looking at that. As a physician, I would agree with you that there has been a limited benefit and probably as much, if not more, pain than gain from that kind of activity. I think there is more benefit to be had from using information that can profile and can describe how people are practicing medicine that, when provided in a feedback form in a constructive way, can be educational so that people get to where they are practicing the best medicine. That is what I am interested in, is what is the best medicine, and not what is the cheapest way to do something and certainly not something that is—has a feel to it of being directive or dictatorial, you know, over a private practicing physician or any physician, for that matter.
    Dr. SNYDER. And one last question. Again, for your opening statement, I think on page seven you give a good discussion about recruiting physicians and retaining physicians in the services and that it is a challenge out there. And you talk about needing incentives to keep people in, and the pay discrepancies, and it seems to me that we have got—generally have a conflict. And I share your concerns, you know, whether it is C130 pilots or surgeons or specialists or whatever it is. It seems like there is a conflict in what—the information that we get.
    On the one hand, you are saying—you are basically saying is please find us some additional dollars, or we are going to have to find additional dollars to get the kinds of incentives to keep people in. But then when we get on the civilian side of physicians, the Dr. Storeygards out here who is going to testify later, the incentive is what can we do to take more money away from until we reach that—we want to get to that critical point where they do not bail out on us but we will let them bail out as long as we can replace it with someone else. Both groups are saying the same group of people and sometimes people say—you know, folks one time will see a base military physician, other times a private physician, and, you know, when you look at rural areas, you are talking about the problem in rural areas.
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    In Arkansas, which is a poor state, rural patient—or rural doctors have special challenges. Big cities, you do not want to see Medicaid patients. No one really notices. In rural areas, they are your neighbors, so you have to see Medicaid patients, which does not reimburse adequately, probably. You have to see all Medicare patients, which every physician in the country is having a real challenge breaking even on Medicare patients. You have a certain number of indigent patients that you will not get anything for that you have to see, because of your credibility, just the job of what you are going for.
    Now if we have got this other group of patients that we used to call ''private pay'' that are now starting to base their reimbursement rates on a percentage of Medicare, you know, you are driving people away from the rural areas or they are going to stop seeing patients or never going to sign up to begin with or you are going to have them hopping around. One year you will have this group, they are going to bail out on you, and then another group, they are dissatisfied, and so you have the parents who are bouncing from group to group, and to me it seems like there is a conflict, how to spend more money to give incentive for our military doctors but, by the way, let's see if we can keep the precedent down, until we make these guys bleed, both doctors and providers out there, by giving them less money. Do you have any comment on that?
    Dr. WINKENWERDER. Well, I would say this, that if you are suggesting that somehow that the—we are trying to pay military physicians at market competitive—or near market competitive rates. There is a concern that if you leave that issue unaddressed, that it is—I think my colleagues here would tell you that we risk losing good people. Right now there are significant pay gaps, so that a military physician in general is going to be paid quite a lot less in spite of the beefing or concern, if you will, of the private practitioner in the community that he or she is not receiving enough from Medicare or anybody else. Our military physicians are nonetheless paid significantly less than that. So I think it is important to make sure that we address that issue.
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    I do not believe that our strategy to control costs or balance our books, so to speak, should be directed at physicians. If anything—again, I speak as a physician—that physicians are often—this is just a personal assessment—have more difficulty representing their interests than large institutions who would do a better job representing their interests at the bargaining table. But to be very candid, it is a scramble in any health care system for dollars, and large institutions, hospitals often come out doing better than individual physicians. And I would say, again to allude back to my earlier comments about the pharmaceuticals, more and more money is going into the pharmaceutical bucket, if you will, if you look at the whole health care dollar, and that certainly puts pressure on where those dollars might have been allocated to, you know, for example, physicians in the past. So it is a challenge. We try to—we are trying to do the right thing. We are trying to make the appropriate monies available to ensure that we do not run into problems for access and that we maintain quality.
    Dr. SNYDER. Thank you, Mr. Chairman, for your indulgence.
    Mr. MCHUGH. Thank you. Another area you might want to look at are the differences between the TRICARE claims process and Medicare. I mean, on the TRICARE side there are 2–400 percent higher costs of processing that through the physicians' office than Medicare. For what value? I mean, I know there is a data difference, but I am not sure it is worth that kind of—.
    Dr. WINKENWERDER. Well, I would like to respond to that just to tell you that we do intend to take a look at that issue as part of the new set of contracts, and I am concerned that our claims payment process is not as efficient as it can be or should be. We want to look at the matter of how prohibitive we are and whether all the requirements that we have are needed. I believe that we need to increase the number of claims that we process electronically. That is a much more efficient way of processing claims in today's world. So that will be among the issues that we will be looking at. I would like to have us do something sooner rather than later about this. I think it is an opportunity area for us.
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    Mr. MCHUGH. Very good. Good to hear that. The gentleman from Texas, Mr. Thornberry.
    Mr. THORNBERRY. Mr. Secretary, I wish you luck, because this is at least the third or fourth year we have talked about this in a row, maybe longer than that. That is as far back as my memory goes, and we keep talking about doing something, but there is still a huge difference there.
    Let me ask you about a couple other areas. On the provider participation in TRICARE, what I have seen is with a call-up of significant numbers of Guard and Reserve, you have got a whole lot of folks who are interested in TRICARE for the first time, and you do not have any network out there, and so you are really starting from scratch, and you get into all of these payment issues, but it is also just building the network so that these families, you know, have somebody to see. Is that an isolated problem? You have not talked about that so far. Is it more widespread than just areas with which I am familiar?
    Dr. WINKENWERDER. The matter of access to care for the Reservists and people who have been called up, their families?
    Mr. THORNBERRY. Right. Who do not live near a major military facility. You know, they are—.
    Dr. WINKENWERDER. I would say that it is an issue. The information I have would not suggest that it is a huge problem. It is an issue. We have taken some steps to address and hopefully preempt that as an issue by waiving the deductible and the co-payment associated with the TRICARE Extra and Standard benefit. We have increased the payment to the providers to 115 percent. And the third step we took was to—.
    Mr. CARRATO. We eliminated a requirement for nonavailability.
    Dr. WINKENWERDER. Right. And I met with the general in charge of our—and we meet regularly. I meet regularly with the Reserve—our Reserve leadership and they have indicated to me that in the main, that things are going well. I do think—I have had reports—I am aware of some isolated issues. I take them seriously, and I think we are going to keep working them.
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    Mr. THORNBERRY. Well, I just do not want it to fall off the radar screen, because we do not know how long these deployments are going to last. So it is a significant deal.
    Dr. WINKENWERDER. I agree.
    Mr. THORNBERRY. To try to get some network up from scratch. And this may be the beginning of it. As you look ahead at the future year's defense budget, what is the rate of inflation which you assume for health care?
    Dr. WINKENWERDER. What we have seen for the last couple of years is overall health care expenditure increases in the range of 11 or 12 percent. That includes both in price inflation, as well as utilization and intensity. So that is important to consider both of those. I think to be on the safe side, at least, it is very difficult to predict out long term, but I think for the next couple of years, it would be safe to assume that the inflation—or the overall growth rate we will see will be in the double digits, above 10 percent—.
    Mr. THORNBERRY. So we are growing at least as fast as a couple—.
    Dr. WINKENWERDER. I think that is a safe assumption to make, and much of that is the pharmaceutical piece then, and that is why I think it is so important that we move forward as part of our new rounds of contracts to address in specific this pharmaceutical cost trend.
    Mr. THORNBERRY. Are you confident that you are able to get those assumptions about inflation built in to the fitup, so that everybody knows for the next 5 years, we are talking 12 plus percent increase in health care costs? It is an enormous chunk out of the budget.
    Dr. WINKENWERDER. You are exactly right, and it is a challenge. Historically the Defense Department has tended to budget these things on a year-to-year basis, and that is the way that the rest of the Department works. Health care, I think, is—if I can use this term, is a bit of a different animal. We are dealing with a marketplace within which we operate that has some underlying trends, and try as we might, we cannot just dictate as managers that health care costs are only going to go up five percent next year. And if we are dealing with an underlying trend that is ten percent, that is what it is, and that is what it is going to be for the purchased care sector. I think we are having more success at persuading all of those involved that these are the dynamics that we are dealing with, and we should act accordingly.
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    Mr. THORNBERRY. Well, I appreciate the fact that the Administration comes in with a realistic estimate of health care costs. We do not have to backfill like we have for several years. But I also think it is important—and I have come just from having a couple weeks—three weeks ago having the budget on the floor. You try to look ahead at where we are headed, and building that in is very important.
    Let me ask you about one final area. We just talked about tremendous escalation in costs in health care. You know, that will only increase. And yet the troops who are—at least those deployed in the Middle Eastern region of the world are under at least as great a danger as they have ever been to chemical, biological and probably other attacks. Are you convinced that you have got all of the money, tools you need to deal with that danger, that you are not being squeezed on one side or another to shortchange what we might could do to prevent somebody over there from denying us access to bases, making some sort of attack on those folks who are deployed there?
    Dr. WINKENWERDER. Well, I am going to let my colleagues, the surgeons, speak to that issue as well, if they would choose to. I will just say that, first of all, I am grateful for the way the Congress has responded in the last year since September 11th with the funding that we have seen in the supplemental budget and what we are looking at for 2003, and we have felt supported by that. I would say that our challenge is to spend some of the money that is coming our way effectively. So I think that requires close and ongoing communication to ensure that dollars end up in the right places and with the right objectives and that the money is spent effectively. I do not see large unmet needs at this point. I am very anxious that we accelerate our efforts, for example, in vaccine research and development, in protective clothing and equipment, in the area of surveillance and detectors. Those do not—all of those items actually do not fall within the defense health program budget but fall within the acquisition budget. But I think that we just need to keep talking about working together on that whole range of topics. And I do not know if any of you would—.
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    General CARLTON. I would love to comment on that. We, as you know, have been squeezed very badly in the last ten years, but in the last three years we have literally overwhelmed or overhauled our whole readiness posture. We now call an expeditionary posture. Everything I own is deployed. As we have modernized, everything is gone. We responded to floods in Houston. Everything we responded to is currently deployed. Everything I can build, as fast as I can build it, is deployed. And so the current modernization discussion is well recognized and we are excited about that. This transition we are vulnerable in if some event were to occur in the United States we could not respond, we, the Air Force, could not respond because we are so committed overseas. So there are other opportunities for us to go faster that we would be happy to explore with you. We have received great support in the last year to accomplish these modernizations.
    General PEAKE. Sir, a little different tack. I think that the war fighters are very attuned to the need to be able to understand what is going on in the environment. We send teams in to test oil—or water, soil and air, for those kinds of things. We do the lab tests on the routine surveillance that is being done in places like that right now. I think that there is room for research, looking forward, recognizing that this threat is—we will now accept this as a real threat. We are working with the White House now in terms of some of the kind of things that we—and it is not a short term effort. This is a longer term effort that will have to be funded in terms of the research base to be able to know what really is in weaponized—what could be weaponized and how would we defeat it and so forth. So keeping an eye on the research dollars for that in the outyears, I think, will be something that will be important.
    Mr. MCHUGH. Admiral, I do not want to shortchange anybody.
    Admiral COWAN . I cannot add much. I have the reasonable level of comfort with the level of resourcing that we are doing right now. There are some intangibles that we cannot know yet. Our paradigm was always to prepare for war in our safe haven and then go somewhere else to make war, and the changes that we have had to make in how we think and how we protect the citizenry of the United States when we are doing the protecting over the back fence is yet something that we have not completely worked out. Whatever the challenges that face us in the future, having both the adequate level of resourcing and having that resourcing be stabilized are really the keys, though, for us to make the best use of it.
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    Mr. MCHUGH. Thank you. Thank you all and thank Mr. Thornberry. The gentlelady from Virginia, Mrs. Davis.
    Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman, and thank you, gentlemen, for being here. Mr. Secretary, I have raised the issue numerous times on providers electing to drop out or participate in the TRICARE program, and I have been sitting here trying to decide if Fredericksburg, Virginia was a rural area, and I am not sure it is. And it is where I have the biggest problem right now. And one of the reasons that our providers in Fredericksburg have dropped out has been the reimbursement rate.
    Last year I wrote a letter and asked about having the rate increased to 115 percent. And my question is, why have you not authorized a contractor (CR), to do that, and second, in what areas has DOD actually used their ability to raise it to 115 percent? This may be for Mr. Carrato or whichever one of you wanted to answer it.
    Dr. WINKENWERDER. I would just say I recently learned about that issue. I do want to make sure that we are exercising any authority that we might have that would fall within the general bounds of consistency of how we would deal with any other group. In other words, that we do not get into a situation in our effort to address these concerns and deal with this particular physician group that would create a precedent that would cause us to have to begin doing that across the board.
    But that said, you are exactly right. It is not a—this is not a rural situation. It is the only urban environment, medical provider payment issue I am aware of that we have, but I am going to turn to Mr. Carrato just to ask him if he would care to comment as well.
    Mr. CARRATO. Yes, yes, ma'am. And as you know, we have—we, and our lead agent office have been having discussions with both Pinnacle Health and with the Pratt Clinic. Documentation was submitted, and the test that we apply in order to increase the rate is to try and make a determination whether access has been impaired. We asked for some additional information, too. One of the questions prior to moving forward with an increase to 115 percent, is that adequate to bring a group back into the network, and we are still looking for some additional information to determine is a 15 percent increase enough for Pratt to be brought back into the network?
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    Mrs. DAVIS OF VIRGINIA. So you are saying the ball is in Pratt's court right now?
    Mr. CARRATO. We have—we looked at the information that was provided and did not believe that access was impaired in the Fredericksburg, Virginia area. And we look at availability of providers for our enrolled population, and then we also look at the availability of providers for our Standard and Extra program. The 115 percent, the ability to go 15 percent above the CHAMPUS maximum allowable charge (CMAC), one of the questions that is asked before we apply that is, is that—the question is, is that enough to bring Pratt back into the network? And I believe that the latest information is that that is not enough to bring them back into the network.
    Mrs. DAVIS OF VIRGINIA. Well, I am not real sure about your comment that that access has not been impaired. I do know that DOD disagrees—or there is a discrepancy between DOD and Sierra as to how many people were affected. Bottom line is Pratt has dropped out, and the providers that are in the Fredericksburg area right now have taken the maximum. They can't take any more. And it is my understanding for TRICARE Prime, we don't have providers right now in the area. And the other part of my question is, can you give me any idea of what localities DOD has used to raise it to 115 percent?
    Mr. CARRATO. We have—in Alaska we used some authority. We had to move from a single locality and actually created a second locality for rural Alaska. Medicare is a single locality. We have used it—and that is not the—you know, the 15 percent increase. This is a relatively new authority. So we have not yet applied the 15 percent increase. And this is an increase that we can pay the network providers. We have historically been able, if access is impaired and we look at a variety of factors to determine impaired access, and it is not the size of the network, but whether our folks are able to see providers, so we look at claim participation rate. We look at the volume of services on our claims and whether that has been increased, and we also look at our beneficiary satisfaction survey information, particularly the question that relates to satisfaction with being able to get—to get an appointment.
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    Fredericksburg obviously is a significant issue for us. We are continuing to have discussions, and we will take another look at it and—.
    Mrs. DAVIS OF VIRGINIA. Can I clarify what you just said? Did you say you really have not used the 115 percent anywhere?
    Mr. CARRATO. It is a—the 115 percent was a new authority. That gave us the authority to be used to—.
    Mrs. DAVIS OF VIRGINIA. To network—.
    Mr. CARRATO. Payment to network providers.
    Mrs. DAVIS OF VIRGINIA . And you have not used it yet, is that what I am hearing?
    Mr. CARRATO. Yes.
    Mrs. DAVIS OF VIRGINIA. One last question. If the contractors were given the responsibility for processing the claims in their region, would that improve the timeliness of claims payments and maybe even save DOD funding?
    Mr. CARRATO. We currently—claims, I think we have made tremendous strides in terms of the timeliness of payment and the accuracy of payment. We have worked with our contractors to look at ways to simplify the process and looked at new standards. We now—we have a standard for retained claims that we process 95 percent of claims within 30 days, 99 percent of all retained claims within 60 days, and 100 percent within 120 days of retained claims. We are, as Dr. Winkenwerder said, for the next generation of contracts, we are looking at ways to take advantage of the latest in technology to improve our claims performance. We still need to remove the hassles that our providers have indicated to us exist, the hassle that still exists for our beneficiaries. So we have made great strides. I think we still have a ways to go, and we are pursuing that.
    Mrs. DAVIS OF VIRGINIA. To go back to my question, though, if the contractors were given the responsibility, would that expedite processing the claims in the—.
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    Mr. CARRATO. Ma'am, the contractors currently have the responsibility—.
    Mrs. DAVIS OF VIRGINIA. They do it now.
    Mr. CARRATO [continuing]. For paying claims. Yes, ma'am. They have chosen to subcontract out to—and there are two subcontractors—.
    Mrs. DAVIS OF VIRGINIA. They are choosing to sub it out?
    Mr. CARRATO. Yes. They have chosen who they subcontract with, and the two they have chosen are WPS and PGPA, which is Blue Cross/Blue Shield of South Carolina.
    Mrs. DAVIS OF VIRGINIA. Thank you, gentlemen. Thank you, Mr. Chairman.
    Mr. MCHUGH. I thank the gentlelady. The gentlelady's comments and Mr. Carrato's responses confuse me a little bit in one way. So the GAO report, which I have some knowledge, that determined the Alaska model would not be sufficient. In fact, 128 percent would not do it. That was never implemented. That was a study?
    Mr. CARRATO. No. We have the authority where access is—we have the authority where access is impaired, and access impaired—where access is impaired, we are not just looking at the size of the network or the adequacy of the network. We look across our triple option. So for standard, extra and prime beneficiaries, the Alaska issue—for example, in Valdez, Alaska, there are five providers, and they said that they would not see our patients at the CMAC rate, and we decided—I mean, it is pretty clear, you know, that access is impaired if the five providers will not see our beneficiaries. In that case we have the ability to create a second locality in Alaska, and we then increased payments 28 percent above CMAC in the rural Alaska areas. GAO went to Alaska post that increase, and they looked at what did increasing CMAC rates by 28 percent, what did that do? Did it bring more providers, you know, into the system, and GAO concluded that essentially what happened is we just paid those providers who were already seeing our patients 28 percent more.
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    Mr. MCHUGH. So you did implement it then.
    Mr. CARRATO. Right. 15 percent was—.
    Mr. MCHUGH. That is what I thought, but—.
    Mr. CARRATO. There was a relatively new authority that Mrs. Davis was talking about, the 15 percent.
    Mr. MCHUGH. Thank you. I appreciate the clarification. Pardon me? OK. She asked so nicely.
    Mrs. DAVIS OF VIRGINIA. Could you explain to me access-impaired?
    Mr. CARRATO. OK. We look at—and it is not hard and fast. We look at a couple of factors when we try and determine whether or not access is impaired. It is very simple when the five providers in town say we cannot see your patients. What we look at is provider participation rates and that tells us on the claims that are coming in what percent of providers are participating on those claims, meaning they accept CMAC as full payment. As Dr. Winkenwerder said, our latest report shows that at the highest level ever, a 97 percent participation rate. And we also look at volumes of services and just see if the volume of services increased in an area, and then we look at some of our provider—or our beneficiary satisfaction survey, and those questions that we can look at that will determine whether or not there is a problem with getting access to care. And then we have—we rely on our lead agents and our folks who are close to the ground to—you know, we can look at certain things nationally, but then we need to talk to the folks on the ground, our contractors, talk to the providers and beneficiaries and try and draw that conclusion.
    Mrs. DAVIS OF VIRGINIA. Well, not to take the Committee's time on a specific issue, I would love to sit down and talk with you about our problem here.
    Mr. CARRATO. Yes, ma'am.
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    Dr. WINKENWERDER. I would be glad to respond. Obviously this is a judgment call. It is meant to be informed with good information, but it is a judgment call, and we are certainly open to looking at how we apply those judgments.
    Mr. MCHUGH. Thank you. The gentleman from South Carolina who has shown immense patience, Mr. Wilson.
    Mr. WILSON. Thank you, Mr. Chairman, and gentlemen, it is an honor to be here with you and to see some of these Surgeons General. I have a new appreciation of military medicine, in that one of my sons is newly commissioned as an ensign and is in Uniformed Services University of the Health Sciences and so I hope he will be following in your footsteps. And I am learning a great deal about that from him, and he is real excited about the opportunities he has had.
    As newly elected—that is why I am sitting so far up front, and that is why I get to ask questions last, but questions have come to me concerning Reservists who are on extended missions, Guard and Reservists, who could lose their private health coverage, and I was—Mr. Secretary, I would like to know what the status is. Has this arisen as a significant problem, and are there any solutions being considered such as wraparound coverage or COBRA coverage?
    Dr. WINKENWERDER. For Reservists that lose their private health coverage?
    Mr. WILSON. Yes.
    Dr. WINKENWERDER. Well, if they are activated, they would begin to have coverage under TRICARE, as well as for their families, and the issue that we sought to address with a pilot program that we will make sure continues if the deployments of Reservists continue at the same level or greater, addresses the deductibility and co-payments that people have and waives those, ensures that they do not need to provide—nonavailability statements (NAS) need not be provided for those patients, making that care more accessible to them. And the third item. I keep forgetting the third.
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    Dr. WINKENWERDER. Well, I said NAS. And then the payment rate, increase the payment rate to the providers in that area—or not in that area. If they use it for their provider, that that provider would be paid more—.
    Mr. WILSON. If they lost their coverage, their private health insurance coverage, what—is there any plan to assist by way of, again, a wraparound coverage that would extend beyond their service or—.
    Dr. WINKENWERDER. We do not have any plans currently to provide direct assistance to Reservists to enable them to continue their private insurance. We would just hope to be able, and believe that we can, provide coverage for them through their enrollment in the TRICARE program.
    General CARLTON. Sir, you have a very well-known constituent with that issue, and we are—the Air Force is right now working a proposal to take to the Secretary to say, ''Perhaps we need to look at this differently, and instead of hassling people and making them leave their civilian coverage, instead we could pick up that coverage and not have to go through transition to the military side, the TRICARE side, and then back again in short order.'' And you have caught us, because I have not gotten that to the Secretary yet, but I believe there is a case to be made where that would be wise.
    Mr. WILSON. Well, again, we are all facing so many new situations, and I just commend you on recognizing it and trying to make it possible for persons to serve in the Guard and Reserve and not fear losing health care coverage, and so that we keep the families happy and the service members happy.
    Dr. WINKENWERDER. It is an important issue, and I think it has the markings of being a continuing issue.
    Mr. WILSON. Right. And the Guard and Reserve members want to serve.
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    On another issue, I have been contacted by a chiropractor in the district concerning chiropractic care in the defense health program. It is my understanding that there are 13 demonstration bases, and I want to find out what the status is on the demonstration bases, or is this system working, or what is the availability of chiropractic care?
    Dr. WINKENWERDER. I am going to turn to my colleagues.
    General PEAKE. The demonstration was complete, and there were, as you say, demonstrationsites that cost about $300,000 a site to run. What Congress came back and told us was that that demonstration is over, but now at those sites, provide that care to active duty, not the dependents. It is not a TRICARE benefit. And then over the next five years go ahead and expand that out to other places to take care of more, again, active duty, not for the—not a TRICARE benefit for dependents.
    Mr. WILSON. Thank you very much. Thank you, Mr. Chairman.
    Mr. MCHUGH. Mr. Snyder had a follow-up question.
    Dr. SNYDER. Just a follow-up question, Dr. Winkenwerder. When we were talking earlier, you made the distinction between the kind of negotiations that occurs with physicians and what they get paid versus what you described as a larger institution, the hospital. I would just make the comment. Obviously from your background, too, you know that in—particularly going into rural areas, but I think it is true not just from rural areas but particularly in rural areas, the integration between the physician community and the hospitals is so close that they cannot survive without the other. So it does not matter that if you say, yes, we are reimbursing the physicians we think adequately if you have driven the hospital out of the business, you may have well have driven the physicians out, because they cannot drive 20 miles down the road and take on another hospital. They would be sending their patients down there for x-rays and everything. The two go hand-in-hand, and I—well, I have rambled on enough. But do you have any comment on that?
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    Dr. WINKENWERDER. Well, I think that is true in rural areas or isolated areas where it is literally, you know, one group of physicians and one hospital, that that is less the case obviously in larger or urban areas. But at the end of the day, I would just say that it is our approach to, both on the physician side and the hospital side, to pay fairly and appropriately at market rates. We obviously do not want to be paying far above that and be an out-lier in that respect. We surely do not want to be paying, you know, below-market rates. We would like to be paying market rates.
    And Medicare, for better or worse, really is—I think functions today in many ways as the key setter of market rates, both for hospital services and physician services. You know, that was not necessarily the case 15 years ago. I think it is emerging to be the case today.
    Mr. MCHUGH. Thank you. Gentlemen, and ladies and gentlemen, those who are waiting and those who have just participated, I thank you. There are, as you understand from the complexity of these various issues, a whole host of other questions we could ask you, but two hours is the maximum allowable sentence under the guidelines here, and we do have, as I said, those two other panels. So I would request that you receive what I expect to be a fairly large number of written questions that we would very much appreciate for the record such things as the Anthrax Vaccine Immunization Program (AVIP). I will direct that particularly to our Surgeons General friends and see how their confidence level is rolling along on that. That is going to become very controversial again now that Bioport has been reauthorized, and I think it is important that we have those and many other statements sharing your expertise on the record.
    So thank you all very much for your service, gentlemen, and thank you for being here. As I said, I appreciate it. The second panel. While we are changing the seats and the name tags, let me utilize this time to introduce our second panel. First of all, Mr. David Baker, who is President and Chief Executive Officer of Humana Military Healthcare Services; David McIntyre, Jr., President and Chief Executive Officer at TriWest Healthcare Alliance; David R. Nelson, President, Sierra Military Health Services, Incorporated; Mr. James E. Woys, President and Chief Operating Officer, Health Net Federal Services.
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    Well, gentlemen, again, thank you for your patience. As we requested of the first panel, which I felt they were very accommodating, we have your statements in their entirety. They have been entered into the record, and we will avail ourselves of the full range of your insights there. But as you are making your presentations, to the extent you could summarize in about five minutes, it would be greatly appreciated.
    So if you gentlemen have found yourselves situated, we will begin and go down in the order in which we introduced you. No particular relevance there that I am aware of. It is not even alphabetical. Yes, it is, too. That must be it. We will start with Mr. Baker from Humana Military Healthcare Services. Welcome, sir.
    Mr. BAKER . Thank you, Mr. Chairman, Chairman McHugh, Ranking Member Snyder, members of the Committee, thank you for inviting me to provide my perspectives on TRICARE. I have provided written testimony, but would like to summarize the key points.
    As a lifelong military beneficiary, I wish to thank Congress for providing military community access to such a broad spectrum of affordable quality health services. And as CEO of Humana Military Healthcare Services, I believe we are providing cost-effective, high quality care, responsive beneficiary support and broad access to an extensive provider network.
    Today's health care costs and utilization continue to rise in both the private and public sectors. We at Humana understand that our responsibility as a TRICARE contractor is to help keep cost increases under control. Under your watchful eye, I am convinced we are doing so. Today Humana serves more than 3 million TRICARE beneficiaries in 16 states. We are the largest of the four TRICARE contractors. In our 4 regions, beneficiaries have access to a superb array of military treatment facilities and a robust civilian network of approximately 58,000 providers. Embedded in our network are 82 veterans affairs medical centers and outpatient clinics, or 95 percent of the VA assets in our regions. Thus far, our provider turnover has been extremely low, but I am concerned about TRICARE payment rates.
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    In my written testimony, there are three key messages. First, Congress should continue to support the fundamental design of the TRICARE program. It provides military families with an integrated health care system and one-stop shopping to resolve any questions. TRICARE risk-sharing creates a strong partnership between the contractors and the Department of Defense, and the current model also enabled seamless implementation of the Fiscal Year 2001 National Defense Authorization Act, including the senior pharmacy benefit and TRICARE For Life. And finally, the current program permitted a coordinated response to the terrorist attacks of September 11th.
    Second, the TRICARE program should adopt some of the best business practices used in the private sector. One of those is access to information technology. Consumer-driven health care information is critical, as our country moves forward in improving the delivery of services. Such technology advances should be part of the next generation of TRICARE contracts.
    Now at the request of the Department, I have submitted other ideas related to improving TRICARE using best industry practices, and I am optimistic DOD will give them full consideration. And finally, TRICARE should be—should more fully incorporate population health initiatives, including disease management. Disease management programs are being offered by large employers and will soon be used in the Medicare program to help improve the overall care of enrollees with specific diseases like diabetes, congestive heart failure and coronary artery disease. Such disease management programs should be more fully included in the TRICARE delivery system.
    I look forward to working with you, DOD, and other members of the Committee. Thank you for the opportunity to be here today.
    [The prepared statement of Mr. Baker can be found in the Appendix on page ?.]
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    Mr. MCHUGH. Thank you, sir. Mr. McIntyre.
    Mr. MCINTYRE. Good afternoon, Mr. Chairman, Dr. Snyder, and distinguished members of the Subcommittee. Thank you for the invitation to again appear before you to discuss TRICARE in the central region. My name is Dave McIntyre. I am President and CEO of TriWest Healthcare Alliance, which serves the military's health care needs in 16 States.
    On April 1, we began our sixth year of full operation, having concluded last year the negotiation of a four-year extension on our contract. Mr. Chairman, I would like to submit my entire written testimony for the record. You and your colleagues will find that it covers a number of issues, to include my comments on the status of the TRICARE program in our region, the defense health budget for fiscal year 2002, which this Committee and others have provided great leadership on, the next generation of TRICARE contracts, issues facing providers, and our region's experience in supporting homeland defense in the guise of the Olympics in Utah and the lessons learned from that experience.
    I would like to thank you and your colleagues for the leadership that you have been providing this last number of years to make this the world-class health care system that it is.
    I would like to take a minute to applaud the present leadership in the military health care system, to include the Surgeons General for their capable leadership that they are providing during this very difficult and tumultuous time. Not only have we been engaged in a dizzying array of implementation of new changes to the program, but we have been at war, and we have all been responsible for supporting each other in that process and supporting the force.
    I cannot imagine a finer and more dedicated group of individuals with which to partner to fulfill the promise of the military health benefit for a most deserving population, and I particularly want to acknowledge the leadership of Dr. Winkenwerder, the new Assistant Secretary of Defense for Health Affairs. I believe he brings a great balance of public and private sector experience to this position. I think it is going to serve him well. I think it is going to serve the Department well and this program and its beneficiaries well and I believe that we have already seen that he has distinguished himself as a thoughtful, caring and effective and focused individual on the many tasks at hand.
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    To their credit, Dr. Chu, Mr. Abell, Dr. Winkenwerder, Mr. White and General Carlton have clearly integrated their efforts in tackling what I believe is the difficult task of determining the best construct for the next round of TRICARE contracts, and the management infrastructure needed by the Department of Defense as we move into the 21st century. This task is critical. It is complex, and it is enormous. But I believe that their approach will ensure a sensible outcome. On entering office, as they explain, the leadership found a rather difficult paradigm, because the paradigm that had been suggested was going to break apart a system that has already started to mature. To their credit, they solicited input. As they suggested today, more input is needed, and certainly they have not stopped soliciting it. And frankly, this is as it should be, given the complex and interrelated system that we are responsible for joining them in operating.
    I would like to spend just a second on two strategic initiatives that we are working in our region that affect the resources and the balance of resources in the delivery of care to both military families and veterans. They have grown out of the partnership that we have in our region, the rooted and mutual trust, the commitment and shared goal of quality and cost-effective care. The first of these is what has come to be known as the Central Region Federal Health Care Alliance. The mission of this initiative is to maximize resource capability in the provision of optimal health care on a market-specific basis for DOD beneficiaries in our region in the support of their readiness mission as well.
    This initiative that has come with the leadership of not only our lead agent, Colonel McNitt, but also Dr. Petzel, who is the Veterans Integrated Service Networks (VISN), director for VISN 23, seeks to develop a framework for a more collaborative effort to develop a local market-based plan for the integrated use of services in a three-state area. This has been successful. We are in the process of negotiating the contract details at the moment based off of that plan, and we plan to roll out in Idaho and Colorado in the very near future. The model is rather simple. The lead agent chairs a governing board that involves myself, the VISN director, the MTF commanders, and we develop a joint working group that goes out to analyze the need and develop an annual plan from that.
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    The second one—an initiative in our region that has to do with the construction or possible construction of a joint use facility at the University of Colorado Base Realignment and Closure (BRAC), site that used to be Fitzsimons that would encompass the Air Force, the VA and the University of Colorado. Were that project to be implemented, over 20 years, Booz Allen (Consultants) says that Congress and the taxpayer would save more than $120 million in construction and operating costs. I believe that achieving more mature collaboration between the DOD and the Department of Veterans Affairs (DVA), to the benefit of the taxpayer and the beneficiaries of this system is not a bridge too far. We are honored to serve this contract. We are honored to serve the country in this way and I appreciate the opportunity to appear before you today.
    [The prepared statement of Mr. McIntyre can be found in the Appendix on page ?.]
    Mr. MCHUGH. Thank you, sir. Mr. Nelson, Sierra.
    Mr. NELSON. Thank you, Mr. Chairman, Representative Snyder, distinguished members of the Subcommittee. I am Dave Nelson, President of Sierra Military Health Services, the contractor for New England States, Mid-Atlantic States, the National Capital area, as well as northern Virginia.
    Over the past year, Sierra has worked closely and effectively with the military treatment facilities, the office of the lead agent, the TRICARE Management Activity and the Office of the Assistant Secretary to execute two significant new benefits under TRICARE, senior pharmacy and TRICARE For Life. At the same time, we have also dramatically improved the operational efficiency of the base program. We have committed the resources necessary to exceed contract standards and, together with the lead agent and TMA, we have made significant strides in Region One to improve delivery of health care and the satisfaction of our beneficiaries.
    Nothing more clearly illustrates the integration of the care system and the managed care side into one seamless military health system than our collective response to September 11th. The attack on the Pentagon required a high medical readiness and response from both the region and the military health care delivery system. Among the critical accomplishments achieved, Sierra, the lead agent, and TMA worked together closely to track admissions and appropriately move people to the correct level of care. We developed a patient information data base and maintained contact with civilian facilities in both Washington and New York. We established two case management telephone hotlines to coordinate care throughout the country for the severe burn cases that were being admitted to major burn centers and to provide information to families of beneficiaries who had been admitted to these hospitals.
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    Had it not been for the close working relationship and partnership already established between Sierra, the lead agent, and TMA, this mass casualty coordination simply would not have been possible. While the example of September 11 shows how TRICARE works at its best, there are areas of reform in current business practices that should be tackled immediately.
    One area in particular that must be improved is claims processing. A single largest near term savings to the program is available and resides in the claims area. Sierra believes processing a TRICARE claim should be far less costly. At my chart to the left, Mr. Chairman, as indicated, there is a significant cost differential between TRICARE and other claims. As this chart shows, based on figures reported by the General Accounting Office in June of 2000, the average individual claims processing cost under TRICARE is twice that for the most complex in the commercial industry and more than four times than that of Medicare.
    [The information referred to can be found in the Appendix beginning on page ?.]

    Further, the base amount reported by GAO in 2000 does not include recent government paid contract modification cost and it excludes all TFL and senior pharmacy processing costs. Revolutionary processing reform is needed now. Sierra is ready to embark on this new course. We propose now, as we have in the past, to bring claims processing in house. We believe that by doing so, we can lower claims costs dramatically by as much as one half through the use of a central warehouse to process medical, financial, and operational data. This data warehouse would be customized to meet the needs of TMA, the lead agent, and contractors alike. Our proposal would significantly increase electronic submission rates for more savings and greater efficiencies. This new approach would define benefit categories on the front end of adjudication and remove many outdated prescriptive utilization management requirements. The new claims system would process claims less expensively but, perhaps most importantly, more accurately.
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    As you consider the requirements of next generation contracts, Sierra supports the new business approach proposed by the Assistant Secretary, Dr. Winkenwerder, wherein a model retains geographically based risk-shared contracts in which the prime contractor serves as the integrator for all health delivery service in a region.
    In addition to these concerns, I would like to highlight a few other challenges that go beyond Region One and require attention by this Committee. First, TRICARE network providers like those in Fredericksburg, Virginia, are increasingly upset by the falling TRICARE Maximum Allowable Charge (TMAC), reimbursement rates that are tied to a declining Medicare rate. TMAC rates must be raised overall to be more competitive with those of the commercial insurers that generally make up a larger percentage of a provider's practice.
    In addition, the government should reduce the hassle to providers caused by unnecessary administrative requirements unique to TRICARE.
    Second, I applaud this Administration's past efforts to request a fully funded defense health program and I urge this Committee to ensure the program remains fully funded.
    Finally, I would like to take note of the remarks by the Chief of the Naval Operations, Admiral Vernon Clark, in his recent speech to the national TRICARE conference where he emphasized the importance of positive ''self talk'' and the critical role leaders play in highlighting the good that is done in the TRICARE program for our soldiers, sailors, airmen, Marines and their families. It is not only a fully funded defense health program that we as leaders must maintain, but a fully understood and appreciated program as well.
    Thank you once again for the opportunity to address your Committee.
    [The prepared statement of Mr. Nelson can be found in the Appendix on page ?.]
    Mr. MCHUGH. Thank you, sir. You might want to give one of these to the Secretary who is sitting over there.
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    Our final panelist on this panel is Mr. James Woys from the Health Net Federal services. Welcome, sir.
    Mr. WOYS. Good afternoon, Mr. Chairman, Dr. Snyder, distinguished members of the Subcommittee. Thank you for the opportunity to address you on the current and future issues facing the TRICARE program. It is always an honor to be invited back to share with you my company's perspective on the TRICARE program. My company, Health Net Federal Services, serves as the current managed care support contractor for five TRICARE regions and the state of Alaska covering approximately 2–1/2 million TRICARE beneficiaries.
    Before I begin, I would like to personally thank the Chairman and the distinguished members of the Subcommittee on behalf of the beneficiaries I serve for your efforts to resolve the key issues surrounding the TRICARE program and fighting to keep their promise for our retirees or, as General Carlton told me to call them, our great American heroes.
    The current operational performance in my contracts has never been better. As the system continues to mature and stabilize, the success of the TRICARE program increases. For example, we have, I believe, all-time high levels of beneficiary satisfaction. In my contracts, I have over 1.2 million eligibles enrolled in our program, which is about 190 percent of the original goal. Last year we had over seven million customer contacts via phone or face-to-face visits. Ninety nine percent of those resolved their issues on the first phone call or visit. I believe we actually have the industry best claims processing performance, notwithstanding costs.
    Last year we processed 12–1/2 million claims. 98–1/2 percent of those were processed within 30 days, and 100 percent of them were processed within 60 days. We have optimized the military facilities. Last year we recaptured over 1.3 million office visits and almost 20,000 hospital missions through the research-sharing program. We have a comprehensive civilian provider network and in our 5 contracts we have almost 90,000 physicians under contract. Though most of these operational issues are working well, several issues remain that impact program results and merit further attention. They include, as we have heard before and talked about by Dr. Snyder, the challenging civilian provider reimbursement issues. Definitely probably No. 1 on our hit list is that the CMAC rates and TMAC rates are becoming more burdensome for the providers and we are seeing a less number of providers who are willing to accept new patients. As I stated, we are only seeing about a two percent turnover rate in our provider network, but that number is clearly—it tells the wrong story, that we may not have many providers who are turning over in our network, we are having more and more providers who are willing to accept new patients because of the provider rates.
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    We still have problems in the alignment of financial incentives with TMA, lead agent, military hospital or clinic commander and the contractor. We still have work to do. I still think we have issues on the uniformity and portability of the benefit.
    And, last, we have issues on data-sharing between the direct care system and the contractor systems. As we look to the future, we have identified many features that should be retained based upon our prior experience. They include—and, most importantly, our strong partnering relationships with our military customer, strong accountability for performance and infrastructure built to meet the requirements and adapt the change and continues to build stability of the program.
    In addition, we need to have strong commerical network participation in our TRICARE program. And last, we do need new contracts, to have a longer implementation period for new contracts. I really feel we must re-establish division for health care and must ask the following questions. How will the war on terrorism impact the Department's strategy for medical readiness? How will Secretary Rumsfeld's review of defense programs impact military health care? What is the future relationship with the VA and Centers for Medicare and Medicaid (CMS)? Will there be another round of BRACs? And what does the future military infrastructure look like?
    Assuming that there will be changes, even perhaps material changes, we are concerned with the ongoing stability of the program for our beneficiaries. Thus, we suggest any contract changes that are made err on the side of conservatism, maintain stability, and enhance patient satisfaction. Future TRICARE contracts should be based on the financing mechanism that encourages reasonable risk, provides an incentive for contractor-developers to invest in new technology and enable shared decisionmaking and coordination of contractor dollars for the benefit of the total military health care program with our lead agents.
    In addition, we should empower our lead agents, integrate the civilian industry best practices with military health programs, and provide for civilian networks that complement the military health system, including the VA. We have learned that this program, as in any health care program, is extremely dynamic. Future change is needed. The contracts will need adjustment. However, before we clearly identify exactly what needs to be changed, we must know the future structure of military medicine. The contracts are designed to support and supplement the direct care system. If the system changes, the contract must adapt. Now is not the time to propose structural program changes. Now is the time to replace those components of the managed care support contracts that are outdated, while building on the government's investment, value and relationships that are so successful to the TRICARE program. Thank you, Mr. Chairman.
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    [The prepared statement of Mr. Woys can be found in the Appendix on page ?.]

    Mr. MCHUGH. Thank you. And I thank all of you gentlemen for both your work and your participation here today. I do not believe I heard anybody say it directly, but I think I heard, if not all, the vast majority of you suggest that you are, at this point pleased, content with respect to your opportunity for input with the Department as the new contract—generation of contracts being worked. Is that a fair analysis on my part? Anybody want to add? You concur? That is good. You endorse what the Secretary said.
    Well, let me ask you a question. I heard Mr. Nelson talk about claims processing costs. I do not know if that would necessarily—probably not—be a part of the future contracts—maybe it would. But if we could go down the line and each of you had the opportunity, particularly because of his credit, who is still here, very unusual for a Secretary to stay for this long to hear additional panels. That speaks highly of his interest, but if you had the opportunity to suggest one point that you think is vital for inclusion in that next generation of contracts, what might that one point be? Any? Mr. Baker?
    Mr. BAKER. Well, I have repeatedly stated that I believe that the next generation of contracts should retain the best features of the current contracts. And by that, I mean, that the contracts need to be integrated. There needs to be some element of reasonable risk that is shared between contractors and the Department. They need to be long enough, certainly, to justify the investments that are required to move the system forward. But I think the notion of single integrated contracts is the most important. And I worry very, very much about breaking components out of the contracts. We heard today the Department's decision to break retail pharmacy out of the contracts. I am very, very concerned about that, and I am concerned for a couple of reasons. I am not convinced that the Department is going to be able to achieve the cost savings that it has projected. I am concerned, though, that because pharmacy is probably the single best measure of the future health care costs that are going to be incurred and that the best signal of where intervention is warranted, and with retail pharmacy out of the equation, it will be very, very difficult for us to intervene early in the process. And as a consequence, I believe the quality-of-care will be diminished. I have expressed that before to the Department, so it is no surprise to them. But it is that integrated approach that I think is most critical.
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    And while I disagree with the Department's decision to break out pharmacy and break out some other components, we will work around those. But I would urge the Department not to fragment any more of the contracts.
    Mr. MCHUGH. This may sound facetious, and I do not mean it to, you heard the Secretary make this statement, as we all did. You were not surprised by that. I mean, you knew the direction.
    Mr. BAKER. That is true.
    Mr. MCHUGH. I just wanted to make that clear. You must have taken some solace in the fact that he, on the other hand, spoke about things that they have been contemplating of dividing out that they are not. But your point, at least from our perspective, is well taken and understood. Mr. McIntyre?
    Mr. MCINTYRE. I would agree with my colleague from Humana in what he said up to the point of pharmacy, and not to create a conflict here, but my personal opinion on pharmacy is that the Department is to be commended with grappling with this issue. Frankly, we do not have pharmacy management fully integrated into the health care delivery system in the country at this point. We are dabbling at the margins with that, and costs are spiraling out of control in this area, and my personal opinion is that this body and the other body and the Administration have no ability to get their arms wrapped around what the comparative differentials are between the benefit in this program and the benefits that are held in the private sector and the benefits that are held in the public sector and do a compare-and-contrast. And frankly, the first part of savings comes from the consolidation and outsourcing of that function, assuming that it is done with industry's best practices, as the Secretary was talking about, as opposed to a blend between bureaucracy managing part of the process and the private sector doing the other.
    But the real push comes when you have the real opportunity together with the associations and the Department and the budget folks and the Pharmacy Benefit Management (PBM), analyze the variance between different benefit packages, because, frankly, the way to manage this cost is by the design of the benefit. And it is appropriate to make sure it is efficacious and that we are not disadvantaging those people at the lower economic spectrum but at the same time at the moment, we have a benefit that is about six years old in design and it is leaking money all over the place by the way in which it is designed. So I commend the Secretary for looking at this issue. It is complicated. It is going to be difficult, but I think it is a very necessary step.
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    Mr. MCHUGH. Anything you want to add beyond the claims processing?
    Mr. NELSON. Actually I just reiterate my remarks, Mr. Chairman. We believe that a geographically based risk-shared—and we think risk is very important in that it keeps all parties at the table relative to utilization trends that are occurring between these two systems, our own, the civilian delivery system, if you will, and the direct care system—so that need for their being financial skin in the game, if you will, risk—that that is a very important component of these contracts.
    Relative to the pharmacy issue, I would just add my support to the Secretary and the trail that they are headed down relative to carve out as well as the—carve out for the marketing program. We believe that is a very important program, quite honestly, that has been underresourced by all of us collectively and can be better done at a national level in terms of making this program and its awareness and what it contains to the beneficiaries much better.
    Mr. MCHUGH. A national brand, so to speak?
    Mr. NELSON. Yes, sir.
    Mr. MCHUGH. Mr. Woys?
    Mr. WOYS. Well, let me make the vote split on the pharmacy program. I will echo Mr. Baker's comments of my concern on the carve-out pharmacy issue. Part of this is being part of a larger managed care organization. You know, purchasing power is important. I think larger organizations like Humana and Health Net have that ability to get the lower prices. I do believe that we need to better administer the pharmacy program. There are places where we can better get government pricing and really channel patients back to where you need government pricing. Substantial discounts there. Probably bigger savings than any place else, and we can find ways to get the Federal Supply Schedule pricing for pharmacy rather than the retail network.
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    One single item I would probably hope to change in the future contracts is the financing model that currently is in place in our contracts. It is called the bit price adjustment process. It is based upon data that probably is not accurate but we all have to rely upon it, and we need to move to a more simplified version of how we share risk between us and our customer.
    And, last, I would echo Dave McIntyre's comments on benefit design. I think too often benefit design is done on your side rather than done with some thought process on the back side about how we should appropriately spend our benefit dollars.
    As an example, although they are, I think, important to our beneficiaries, to the extent we eliminate any out-of-pocket expenditures for our active duty dependents, that benefit by itself, I am sure, costs several hundred million dollars a year to do. If I take that $300 million a year and think how we would better design a benefit in different areas, I think we could have had a more favorable outcome with some of the issues with regard to provider reimbursement, et cetera.
    And, last, if I had my wish list, we would change the provider reimbursement rates. I do not know when we are going to get that. We are tied to those Medicare rates, and to the extent we could pay providers more—again, we are talking fairly substantial dollars, which is a financial hardship.
    Mr. MCHUGH. Thank you for being so Washingtonian and Capitol Hill-like in your even split. I think it does underscore the very complex nature of each and every one of these issues. Obviously as the providers, you don't agree on each and every point. And, in turn, it becomes rather difficult for the Department and for those of us in the political environment to try to provide the guidance when there is not any clear direction on each and every issue, and that is why your input is both instructive to us and very, very helpful.
    Let me follow up and I will go to Mr. Snyder. And you mentioned the provider reimbursement levels. I believe you heard the Secretary and Mr. Carrato talk particularly in response to Ms. Davis's comments on that reimbursement level versus what it does in terms of bringing physicians in. You may have heard my comments with respect to—in Region One in Jefferson County, Fort Drum, New York, where the current 100 percent of CMAC does not seem to bring in enough physicians.
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    What is your experience in terms of physician availability? And forgive me, I do not recall if it was Mr. Nelson or perhaps one of the others say—and maybe it was McIntyre—you are not having great amounts of folks dropping out of the system, but they are not taking new patients. And that goes back to the provider system. I am not sure we have an agreement here, particularly in light of the GAO report that from my understanding kind of made the determination that while they are a variety of problems, the reimbursement rate does not do it, at least in the Alaska experience at 128 percent. Mr. Woys, you just commented on it, and obviously in your mind it is a significant one. And if we were able to address it and find the resources, we could solve some problems. Is my read on your comments correct?
    Mr. WOYS. I think so, sir. It is becoming more and more a problem every day. This year, as they continue to lower the Medicare rates, we, in turn, lower our rates to our providers. When you look at the underlying rate of inflation, I am sure Dr. Snyder, who is a physician, would know, we are talking about their rent, their malpractice insurance, physician assistants, the receptionist, all those activities are not going down in price. And so what we are doing is we are continuing to squeeze the provider and his ability to put food on the table for his family. Providers are now having to choose about what is the mix of patients that they can see in their practice, that they can only see so many patients with low payer type contracts. I will put TRICARE in that range. Medicare and Medicaid are lower than what our commercial counterparts are paying for similar care activities. So somewhat we are being pushed down into the level of priority. And so we—it is clear that we have opportunities to try to enhance that.
    In some places in my contracts—I have five different regions, serve a multitude of geographic areas, I can tell you some places who are very metropolitan, I cannot get any discounts off the CMAC for providers. And some places that are metropolitan areas, I get very deep discounts because of what the providers are willing to accept or what we might call market rates in those particular areas. So I would not even classify it as rural versus metropolitan. There are not a lot of rural areas that I get substantial discounts and lot of rural areas that I cannot. But it seems to be geographic-specific and it is becoming more and more a problem every day. Two years ago it was a problem, but not quite as extensive as it is today. And I think we are seeing more and more providers closing their practice to new patients.
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    Mr. NELSON. I would submit that perhaps 115 percent as submitted to testimony by the Pratt Medical Group, who you will hear later from, Mr. Chairman, that 140 percent of Medicare is more competitive in their particular marketplace. So I think the standard that perhaps we are using which is we have all alluded to is tied to the Medicare reimbursement level, which had an approximately 5.4 percent declination this year, and that has been the case in previous years as well, it has been a compounding effect and we are at the cutting edge of this issue. Each and every one of my colleagues and I are meeting with providers. Our provider reps are out there every day pounding the pavement and knocking on doors. And this is the feedback we are getting back on a real-time basis that we are providing to you here today, that in fact these reimbursement rates that were implemented over the last six months to a year are, in fact, adversely impacting our delivery systems. I think the construct of these contracts, when initially written in 1988, 1991, then 1994, 1995, all were based on a discounting of networks that existed in the marketplace. That is how companies like all of ours seated here today went out and built networks. We were able to obtain discounts off of prevailing fee structures. That, by and large, as a behavioral pattern is all but gone throughout my region, and I cover both rural New York as well as northern Virginia and everything in between. It is just not the case any longer. What we are trying to do is influence provider behavior on the back end as opposed to getting discounts on the front end.
    Mr. MCHUGH. Mr. McIntyre.
    Mr. MCINTYRE. In the 1980's, I had the pleasure of serving on the staff of a member of the U.S. Senate and that member happened to be on the Budget Committee. And it was the year that the Finance and Ways and Means Committees and Budget Committees got together to adopt physician payment reform for the Medicare system. That was done because the perspective of the Federal Government was that that we were paying more than we needed to pay for services. I think we have seen over the last couple of decades, particularly the last several years, because of the budget issues of the Federal Government, that it has become more and more complicated to provide sufficient reimbursement. Some of the cost drivers have been discussed. It is a very, very real issue. And you all know that because you go home to your town halls and visit with your providers. It is not just about TRICARE, it is about Medicare, too.
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    In our region, we are the managed care penetration in a couple of our states. We have Wyoming, for example. There is 1.8 percent managed care penetration in Wyoming. Guess what? We are it. And we go from that all the way to the highest managed care penetrated states. So we've got a full spectrum. And this is a concerning issue. But it is not just about rates. It is also about complexity. It is about hassle. And I think we have done a lot, to the credit of the Administration and the people who work in the military health system, along with ourselves and yourselves, to reduce some of the hassle. But I do not think we are finished yet.
    In our region, we are reengineering utilization management, Dr. Snyder, to take away on our corporate side and the regional side some of the hassle factors that, quite frankly, do not have much yield.
    Second, I would encourage the Secretary—as I know he is doing so, I will just gently add my encouragement. I think we need to look real, real hard at what the requirements are on the data side out of claims processing and whether there is not a different paradigm to provide that same data that will allow us to move to the Medicare standard for claims processing. Not in-source it to the government. That is not the right answer. Keep it resident and integrated into the contracts, but have it done under the Medicare standard.
    One of the problems that providers face today and one of the reasons why only about 13 percent of claims processing is done electronically in this program is because we are not using the Medicare standard. They are forced to go electronic by CMS, what used to be HCFA, for Medicare. And over the next couple of years you will see all claims being processed electronically. That is what makes it less expensive. It also makes it less hassle for the provider if it is done right. We ought to match that standard. We ought to make it possible to do it electronic and then we need to look at the back end side in terms of the information requirements. And I would suggest in the rate area, we be very, very careful about where and how we make adjustments, because this thing is intertwined. It is done by law now. And unless you are going to decouple it, you got a real slippery slope that you are going to slide on.
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    Mr. MCHUGH. Thank you. Mr. Baker.
    Mr. BAKER. I could not agree more than with my colleague, Mr. McIntyre's, remarks at the conclusion of his comments here. This is a—this is a federal issue. This is not a TRICARE issue. As long as TRICARE reimbursement rates are tied to Medicare, then we ought not to focus on TRICARE as a stand-alone in this arena. You really have to look at Medicare. And if you look at a system that says you know it is OK to make some exceptions in certain areas, the exception will very, very quickly become the rule.
    We have evidence already that there are providers in our regions that on a statewide basis are corresponding with one another to ensure that everyone in the whole state understands that the rules now permit TRICARE network providers to be paid 115 percent. So in that context, we are not going to be, very long, be able to hold the dam back and say that only one community is entitled to this. It is just not going to happen.
    Now in terms of the networks, I would also go beyond the reimbursement rates. Several of my colleagues mentioned the issue of the hassle factor, if you will, with this program. Network membership carries with it an awful lot of hassle for the providers. There are issues with credentialing that I have outlined in my written testimony, the fact that we ask them to go through a very burdensome recredentialing process every 2 years when the standard nationwide is every 3 years. So we reach out and touch them every 2 years to say we need for you to fill out these papers and get them in and it is one hassle that frankly they don't react to very well. There are some rules on other health insurance that are different for TRICARE providers than for other programs in which they participate. They view that as a hassle. That is another reason why network membership for some is not considered something that they want to do.
    So I think you have to look at it in the totality. As one provider group told me in a meeting one time, they said, ''You know, you could be the lowest payer, you can be the slowest payer, or you can give us the most hassle, but you cannot do all of those.'' And we have handled, I think, pretty well the speed at which the claims are being processed. But the hassle factor and the fact that we are one of the lowest payers are areas that we need to concentrate on.
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    Mr. MCHUGH. Thank you all. Dr. Snyder.
    Dr. SNYDER. Thank you, Mr. Chairman. In the spirit of time, this question, you can just say yes or no or amplify if you want to, but I will not be offended if you have a very brief answer. When we have this hearing a year from now, what is the likelihood that the physicians and the providers will not have to do the preauthorization form?
    Mr. MCINTYRE. In our region we are in the process of reengineering that program. We have reengineered pieces of it. We are going the last mile with the implementation of a physician practice management enhancement program. I would not call it profiling, but it is an effort to determine those providers that may be having practice patterns that are dramatically outside the out-lier and focus on those, and not spend time hassling the others in the process. And we are in the midst of implementing that as we speak.
    Mr. Woys. Dr. Snyder, we are—similar to what Mr. McIntyre talked about, we are reinventing the processes and the flows in which we have to do for referrals and authorizations. We will have a new system in place in three or four months from now with an add-on feature a little later as we can get providers to accept it. It is an Internet-based process to do referrals and authorizations, fully automated, so they get a real-time response back and forth. That should be available in about seven or eight months, particularly for your region. We are hoping to take some of the hassle factor out. I do not see us eliminating the referral authorization process, but finding better ways to make it easier for the provider and less bureaucratic and more automated that reduces the timeframe and the complication for the provider.
    Mr. NELSON. I would concur with Mr. Woys, Representative Snyder. We have, in fact, put in place an on-line system for our high volume institutions such as Mary Washington Hospital in the Fredericksburg, Virginia, area where they automatically input information for referral and authorization. We receive it in Baltimore and get it back out within right now a couple of hours. So that has been widely received and we are in the process of implementing that regionwide to all of our high volume institutions, and then we will be moving it to our high volume provider groups as well.
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    Mr. BAKER. I think that your original question, Dr. Snyder, was how likely is it—.
    Dr. SNYDER. I am sure there were yesses and noes in those first three answers somewhere.
    Mr. BAKER. I think it is very unlikely that there will be no preauthorization requirement a year from now, partly because the authorization and referral processes are mandated in the contracts that we are under and we cannot unilaterally stop doing something. That is the truth of the matter. Now beyond that—clearly, we all have gone to mechanisms where we have tried to streamline that process. And using the Internet and doing it electronically is one of the issues there. But there is also a dynamic that comes into play here in terms of who pays the bills. Ours is the only contract—only company that is managing contracts under two different financing models. The truth of the matter is that I have tried to make the referral process less onerous in those areas where I am totally responsible for care in the civilian sector. I have tried to do that in the regions where I share the responsibility for payment with the government. And, frankly, when it is on the government's nickel, it is harder for me to achieve those streamline processes.
    To give you an example, we routinely will in a specialty referral permit up to three visits when we approve one of those in the Southeast, where I am responsible for all care that goes downtown. When I tried to do that where the individual MTFs were responsible, the answer was ''Oh, no, since we have to pay the bill, we want you to put each visit through the referral process.''
    Now, frankly, I do not blame them. It is their money that would be used to pay those bills, but the dynamic is very, very different, is what I am telling you. So for a myriad of reasons, I think we will still have this process in place. I would hope we could simplify it.
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    Dr. SNYDER. When I was in practice, I think it was maybe 1990, I was in a clinic that saw a fair volume of Medicaid patients there and there was the hassle factor there. State Medicaid, if you were agreeable, they brought out a computer terminal and set it up in your office and you did an electronic filing and instantaneously Medicaid became our most efficient payer, better than you or anybody else. So I do not think there is anything magical that says government cannot be an efficient payer.
    Mr. McIntyre, I thought your written statement had a lot of good comments about the problem with reimbursement. You gave a little history in there about the time you all were given a mandate to bring down the Civilian and Medical Program of the United States (CHAMPUS), rates to Medicare at the same time that the mandate to Medicare was dropped down and started having having some dire consequences. The geographic adjustment factor rates against us in Arkansas—which I do not think is something that people realize. Mr.—Mrs. Davis and Mr. McHugh may hear us talking about so much percent of Medicare reimbursement rate and yet we do not recognize that there is variation geographically and that all are not treated equally at all.
    I want to actually read from this one part of your statement, Mr. McIntyre. How do these—the rates you all are paying—compare with private health plans in the local marketplace? Surveys in our markets indicate that the commercial plans pay considerably more than either Medicare or CMAC to provide the same services. Commercial plans negotiate rates in local markets while Medicare rates are based on administered prices determined by arbitrary formulas designed at the national level. And then you go on to give examples. You say in Montana, Blue Cross pays $57 dollars for a chest x-ray. CMAC pays $20. And so then we should not be shocked when you—and I appreciate, Mr. Woys, you pointing out—I think a couple of you did, that you may not be having a bunch of people bailing out completely, but we have got huge red flares going off when they start doing restrictions.
    I talked to a doctor yesterday who is now an obstetrician, seeing two Medicaid deliveries a month in a town in Arkansas that has a lot of Medicaid patients. That is a tremendous restriction. Yes, you can brag about them and say we have got 98 percent or only 2 percent turnover, but that is a huge warning sign. It tells us that doctors and the providers out there that this is a burden to them. They do not want our folks coming around any more. They cannot afford our folks. And our folks are the men and women in uniform. And I think there are some real red flares that you are presenting today.
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    Now having said that, I think when I hear—I think we have used the word ''squeezed'' once today. When you have acknowledged we have some real reimbursement problems and then I get reports from provider groups out there that the squeeze is being put on and the take rates are lower than Medicare, which you all have publicly acknowledged are not adequate, I mean—I do not know. I might have to toss and turn if that was me doing that. I think there are some problems because what you are saying is every time you go to a provider and they say to you we cannot make a living on this, you know it is true, and yet you continue to do what you can to get the 80 percent of CMAC or whatever it is from the hospital. I think that is a problem for you all and I think it is a problem for us and it certainly is a problem for the men and women who want to get the services.
    One final comment, and you all comment if you want. When you talk about, yes, you can find hospitals that will take these discounts, I mean I am not so naive as to think there are a lot of reasons why hospitals and companies will contract with you. You all can be a tool to drive other people out of business. I mean that is the reality of the market out there. Managed care had huge battles for market share. So, yeah, you might get the contract you want at a great reduction, but the goal of the hospital was not to make money off you this year. The goal of whoever it is may have been to drive to bring your business from that hospital, cause those doctors or whatever to lose interest in your program, perhaps even to send another hospital in a rural area under, which happens—certainly has happened in Arkansas, and then two, three, four years down the line come back and say ''Oh, by the way, we are the only game in town. Now let us talk about our reimbursement rate this year.''
    You all can be a tool to put people under, so I think there are some issues. One specific question, Mr. Woys—and you all can comment on anything I ramble on about—what is the deal with regard to—Dr. Storeygard had to change his testimony before this hearing because he was apprehensive he would be violating the hospital contract, that I cannot be told information about your negotiation or what the hospital is paying or may be paid for reimbursement. Is that an accurate reflection of you all's contract?
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    Mr. WOYS. I cannot specifically—I do not know about that clause. But I would probably believe that being a legal document, that there is probably some provision in the contract that would probably prohibit either party from disclosing the financial relationship between the two parties. I think—and I think that would be fair to either party. I do not think a provider would want me taking that provider contract and showing it to someone else to get a lower rate because the hospital across the street or the doctor across the street gave me a lower rate. And I think the document does have some provisions in it to say that we would not be sharing what those rates are to the public, to each other. I think any kind of provider would like to come to me and have some relief of that. I am sure that would be more appropriate for issues like this.
    Dr. SNYDER. My guess is you all are in the driver seat on these deals and to keep the small groups from talking amongst themselves. That is all my rambling. If you all have any comments on anything I said, feel free to fire away.
    Mr. MCINTYRE. If I could make one comment in response, I will try to make it reasonably brief. I appreciate, sir, your attention to the detail in my testimony on this issue. And I know other members of the Committee did so as well, as well as the staff. This is a very, very complicated issue. And I guess my bottom line point in my oral response previously was, as my colleague Dave Baker was saying, it is not a simple issue to fix. And I think that the first thing that we need to do is make sure that we have absolutely maximized efficiency and lack of hassle in this system. And I appreciated the Secretary's comments about the fact that as a provider, he is looking at that very closely, and I believe indeed he is. That is our first obligation, because no matter what we do on the provider payment side, that has to be done.
    Then we need to look very carefully and very hard and I believe collaboratively at the question of where are the challenges really lying on the rate side? Our company is a platform on which local Blue Cross/Blue Shield plans and university systems stand. And they build and manage our networks in almost all of our areas. So the network we have is by and large the Blue Cross/Blue Shield network in those markets. That platform has worked pretty well. We bumped against a couple of communities where it seriously is a challenge.
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    Having said that, there is certainly cost shifting that goes on between the public side of payment receipt and what the provider expects from the private sector payer in terms of their beneficiaries or customers that are being served. But that is the way it has been for a long, long time. But I believe we have gotten to the point where we are looking right over the cliff and we are not looking at it from miles back, we are at the edge of it. And that is true not only for this program, but it is true for the broader Medicare program. And, yes, it is true, there is geographic variance, and if you look at that map, it is fascinating. It is not state variance, it is county, by county, by county, by county across the country. And four years ago, I looked at that because I started to see in a couple of our communities we had a real problem coming at us, but this is wrapped around the federal budget. It is wrapped around the Medicare payment structure and it is a very, very complicated issue. And I think one of the things that may be of value, frankly, as we all work through this issue—and I appreciate the Committee's attention to this today—is that there be discussions with Ways and Means and the other body between the authorization Committee and Finance on this very issue, and then between CMS and DOD. I think we have a little bit of room, but probably not a lot because of what has happened on September 11. And I think people, from a patriotic perspective, are trying to do what they can. But this is very, very difficult. And it is not going to be an easy thing to fix and I guess that is my point. There is a little more research to do and I think we have to ask some very tough questions and be very probing and be very meticulous about it and then we need to decide where it is appropriate to act without creating some kind of slippery slope that we are not going to be able to recover from.
    Mr. BAKER. I would also like to jump in, if I could, on that, particularly, Dr. Snyder, with your comment on rural areas. There are rural areas and then there are rural areas. Frankly, in the number of our locations in the southeast, we have military installations that are located in rural areas. The civilian providers were getting the TRICARE business long before we came. So our ability to—and there were no options. Few providers in the community and so forth. The idea that we were able to come in and negotiate deep discounts with those providers is simply not true. The fact of the matter is that if we got any discount at all, it was token. I can point to communities where all of the providers are in one group. You sign one contract.
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    Now the TRICARE problem program imposes some network adequacy requirements on each of us. And so it was in our interest to be able to sign those providers up for the network. But the truth of the matter is we got virtually no discount in those circumstances, but we satisfied the terms of the contract. So I think it would be a mistake to say that we are able to go in and dictate in that fashion. In the truly rural areas where there are no military installations and there are few people in those areas, there are also very few beneficiaries in those areas. Truth of the matter is we do not make a hill of beans in most of those circumstances to a single provider's practice, because there are virtually no active duty members and very few retirees in those areas. And so I do not think that it is quite fair for us to consider that we have that much of an impact.
    Now having said that, I go back to the comments that were made earlier. I think it is time for us to look at the reimbursement rates, but of all of the federal programs, it is not just TRICARE.
    Mr. NELSON. Mr. Snyder, I would just add briefly that on the hospital rural areas, sole community hospitals are, in fact, paid under the program, bill charges, and are not paid the diagnosis related group (DRG), reimbursements rates. So that is a fine point of distinction, but one that I think is very important when you truly look at sole community or underserved areas.
    Mrs. DAVIS OF VIRGINIA [presiding]. Thank you, Dr. Snyder. Mr. Nelson—and I guess you assumed I was going to come to you with a question. You talked about contract processing and you were here when I asked Mr. Carrato earlier would it be a savings if the providers could—if the contractors could process their own contracts. And it was my understanding from the answer I got that you do that now. But yet you were saying with your chart that if you could do in-house processing we could save money. Could you explain to me where I am missing something?
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    Mr. NELSON. Madam Chairperson, the issue at hand is when we initially bid this contract, we in fact bid it with a subcontractor, as do my colleagues. They all use, including ourselves, use a subcontractor to process these claims. We, over the course of time of this contract, have proposed to the government, to TMA, that we alter that model. In fact, we believe the ability, the authority, to move in this direction exists under section 723, I believe from the National Defense Authorization Act for Fiscal Year 2001 where the Department was encouraged to implement claim reform through the use of web-based technologies and others. You heard earlier comments made and there has been a lot of discussion in these hearings in previous years regarding this issue.
    We realize that that is a very significant, especially in Region One, risk-reward equation. We believe, though, we are now poised to move in that direction and that by, in fact, moving this functionality in-house away from a subcontractor that, in fact, drive those types of costs, that we can do it dramatically less expensively, we can do it more accurately and we can increase the electronic submission not only by substituting one system for another, but moreover, making the improvement on the hassle factor redesign in terms of a demonstration, if you will, that this process can be made better and more expedient and more accurate in region and then use that experience on a national basis with perhaps my other colleagues.
    Mrs. DAVIS OF VIRGINIA. You believe you have the ability to do it now under your existing contract or you do not because your existing contract says you have to subcontract it out?
    Mr. NELSON. The existing contract does not direct me to subcontract. I do believe the authority exists. But I believe the Department may—as I do oftentimes need gentle encouragement from leadership to embark upon a very high risk-reward equation, I think the tendency here has been to maintain, quite honestly, status quo in this regard. And that is why we have addressed this issue in various forms over the last three years in this hearing, and yet we keep coming back with the same chart indicating the same type of costs because we have not made a material directional change in terms of how all of us process claims on really the functionality to date.
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    Mrs. DAVIS OF VIRGINIA. Where do you need that direction to come from?
    Mr. NELSON. We believe that we are—and we are working right now with TMA to effect this type of change. We would request the leadership of this Committee to, in fact, stay engaged on this issue and provide that, as I referred to it earlier, gentle encouragement, so that we do have, if you will, the courage to move forward in this direction.
    Mrs. DAVIS OF VIRGINIA. Mr. McIntyre, you are shaking your head no. Am I getting that you do not agree with your colleague?
    Mr. MCINTYRE. I probably should not have been shaking my head. I will let you know what is going on in my mind. We have as a system spent a lot of time struggling with the issue of claims processing over the last several years. This Committee has been very gracious to be very patient with all of us as we have been doing that and provide us with some gentle encouragement in that direction. And over the last couple of years, we have dramatically changed this system in terms of performance, in terms of timeliness, in terms of how quickly we are able to pay things. And most of us have seen our accuracy rates drop—or improve dramatically—not drop dramatically, but improved dramatically. And we all have the choice when we get into this business on what we do directly and what we subcontract. And we have the option at any point in time under our contracts to change that.
    We have to advise the government on what we have to do, and we have to get their concurrence if we are going to make a change. But we get paid revenue to do this work, and we have the ability to make changes if we want to choose to change subcontractors or bring things inside or outside. So simply the notion of being able to bring it back in versus having it carved out is something we can do today.
    I just did that under a subcontract in the last six to eight months. Sometimes it is very expensive to do that, and there are certainly risks and costs to doing it, and you have to be very careful about how you do it; but we do have the flexibility, at least in my contract, to do that currently under the current paradigm of the contracts.
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    Mrs. DAVIS OF VIRGINIA. Anyone else?
    Mr. BAKER. I would like to jump in. There are any number of thoughts that are going through my mind on this, and while I can appreciate Mr. Nelson's enthusiasm to move forward, I would submit that now is not the time. I think we heard—in fact, I know we heard Dr. Winkenwerder, Mr. Carrato, indicate their intent to go back and look at the claims processing requirements. I think we ought to let them do that, to examine whether the Department couldn't move toward something that was more standard in the industry. I think we ought to let them do that.
    In addition to all of the changes that Mr. McIntyre mentioned, don't forget that one of the other very, very big changes we made has had a tremendous impact on the claims volume, and that was the inclusion of the senior pharmacy and the TRICARE For Life claims. And the volume of claims going through the two fiscal intermediaries is increasing dramatically. If you are asking for my opinion, and I think you were from your question, I think it would be a mistake in the middle of the transformation of this program, unprecedented in its history, for us to launch out with a claim processing experiment in any of the regions.
    Mrs. DAVIS OF VIRGINIA. Do you want to weigh in, Mr. Woys?
    Mr. WOYS. Sure. I think I would err on the side of Mr. Baker's comments about stability and can our system withstand another transition, especially in claims processing at this point in time?
    I do believe that Mr. Nelson has valid points about the claims processing activities—I question the number, because I have looked at it pretty hard; I have asked the Department to do this. And so I think, one, it still requires permission for the Department to allow you to change claims processors. There is still that provision in our contract that requires permission on that part.
    And again, part of the process that we are at right now is that we are about ready to design a whole new round of contracts—stability, in my mind, is so important, where we stand today—and that the system, I don't think, can withstand a major disaster with regard to a transition issue right now.
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    And so I am looking more, as I say in my testimony, on the conservative side to kind of maintain where we are at, that if we try to change claims processing activities—at least if I did—you know, I have gone through several; I can count them, seven different claims processing transitions in my TRICARE career. Every single one of them, no matter how many lessons learned, has had some problems with regard to transition activities.
    So I would, I guess I would err on the side of Mr. Baker's comments, that we need to let the Department decide what the new process is—hopefully, they will come up with some creative ideas—and to move forward.
    Mrs. DAVIS OF VIRGINIA. Thank you. Mr. Nelson, did you have another comment?
    Mr. NELSON. I guess on rebuttal, if I might—.
    Mrs. DAVIS OF VIRGINIA. It is OK. We don't agree up here either.
    Mr. NELSON [continuing]. That the current process really creates a barrier to entry, and I think the program warrants more competition. I think an efficient and effective claims processing functionality would introduce greater competition. And, in fact, for one organization to have 80 to 85 percent of the market share of a business this large is inappropriate; and that it has all been done under all of our aegises, and we ought to change it and we ought to have the courage to do it and we can do it now.
    Mrs. DAVIS OF VIRGINIA. Thank you. Thank you, gentlemen. Thank you, Mr. Chairman.
    Mr. MCHUGH [presiding]. Thank you. And I thank the gentlelady for sitting in. Gentlemen, I apologize. I had to run over to the floor, but I can tell by the time I have spent away that you didn't squander the opportunity to discuss these very important issues. And again, as with the first panel, I know we have a number of questions—you can stay up here, Jo Ann; you don't have to—I kind of like you up here; you give us a better look—that we would submit to you in written form. With your gracious cooperation, we would appreciate the opportunity to put your responses into the record.
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    Thank you for your participation, for all you are doing in this very important field, and we look forward to working with you in the future. Thank you. Speaking of patience, if our third panel that has been patiently awaiting would please come forward. And while they are finding their positions, let me introduce them. I am looking again in alphabetical order:
    Benjamin H. Butler, Mr. Butler is the National—at The National Military Veterans Alliance, the National Association for Uniformed Services; Sue Schwartz, D.B.A., R.N., representing The Military Coalition. She is Cochair of the Health Care Committee of The Retired Officers Association; Mr. Alan Storeygard—Dr. Storeygard—Jacksonville Medical Clinic, whose name has been mentioned earlier here today; and Mr. William White, who is Chief Executive Officer at Pratt Medical Center, also mentioned here today. Ladies and gentlemen, thank you, as I said, for both being here and your patience.
    And as with the other two panels, as you can see, we managed to take up a considerable portion of time even with a summation of their remarks, but your entire statements have been entered into the record—will be carefully, and have been already carefully studied and, hopefully, from our perspective, utilized. So if you could sum up those more extended remarks, it would be appreciated.
    And why don't we begin with you, Mr. Butler? Welcome, sir.
    Mr. BUTLER. Thank you, Mr. Chairman and distinguished members of the Committee. The National Military and Veterans Alliance (NMVA) is very grateful for the invitation to testify before you about our views concerning current and future issues facing the Defense Health Program.
    Mr. Chairman, the overall goal of the National Military and Veterans Alliance is comprehensive, lifelong medical and dental care for all uniformed services beneficiaries regardless of age, status or location. And in light of these overall objectives, we would request that the Committee examine the proposals in my written statement. I would like to highlight a couple of those for you today.
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    During recent hearings, a major topic of discussion has been DOD-VA sharing. I would like to talk about this briefly. While we support VA-DOD sharing, we do so with the following provisions: first, we do not want to see unification of the budgets. The budgets should be kept separate with memos of understanding and sharing sites. We think the joint procurement of medical equipment and drugs is a good idea, because such purchases would benefit from economy of scale to save money in both systems.
    Development of a uniform claims and billing system would greatly benefit any DOD-VA sharing initiative. It has been our long-time hope that part of the growing costs of medical treatment in both the Department of Defense and the Department of Veterans Affairs could be paid by billing private insurance companies and Medicare systems. Of course, we call this DOD and VA subvention.
    Numerous attempts to allow retirees to use their Medicare benefits in MTFs have failed. In part, this failure has been caused, we believe, because the various systems do not share the same system for claims and billing. Since one of the primary systems for all medical claims in the country is clearly Medicare, if DOD and the VA adopted the Medicare claims system, all parties—private insurance companies, DOD, the VA and Medicare—would know what medical services, pharmaceuticals, laboratory services and so forth have been provided.
    On another topic, the law enacting the TRICARE For Life program requires Medicare Part B enrollment for participation in the TRICARE For Life program. In addition, Part B is required for all retirees reaching age 65 on or after 1 April of 2001 for them to participate in the new pharmacy program. Although we believe in the principle that the military benefits should stand alone and not require Part B participation. However, we believe requiring Part B for participation in the pharmacy program does not result in significant savings and creates a hardship for some beneficiaries, and it should be eliminated.
    In addition, some 12,000 retirees residing overseas are required to participate in Part B Medicare in order to enroll in TRICARE For Life. Since they cannot use the Medicare benefits overseas, we recommend that this requirement be eliminated for all retirees residing overseas.
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    Some retirees who live near military installations did not enroll in Part B because they believe they receive care at the hospitals and clinics located on the military bases; and then the bases close. Many are in their 70's and 80's now, and to enroll would require them to pay huge penalties. We recommend that those who relied on these hospitals and were 65 on or before the date TRICARE For Life was enacted be allowed to participate in TRICARE For Life without enrolling in Part B Medicare.
    Finally, Mr. Chairman, the military services continue to lose top quality doctors and nurses at midcareer. A major reason is the difference between compensation levels for military physicians and nurses and those in the private sector. Results of a recent survey of military neurologists, for example, show that pay and benefits are the most important factors impacting retention. Improving specialty pay and bonuses and including specialty payment bonuses in retired pay calculations would aid retention.
    More than half of midlevel military urologists, that is, those with 5 to 15 years of service, have not made their future career decisions. The survey also showed that 83 percent of senior military urologists, those with over 15 years of service, plan to retire at the earliest opportunity. Therefore, prompt action to retain these and other highly skilled medical professionals is needed. NMVA recommends that prompt action be taken to improve these special pays and to include them in the retired pay calculations.
    Mr. Chairman, distinguished members of the Subcommittee, we want to thank you for your leadership on military health care in the past years and for holding these hearings this year. You have made it clear that military health care continues to be a high priority, and we promise you our continued support in these key areas. Thanks again.
    Mr. MCHUGH. Thank you, Mr. Butler.
    [The prepared statement of Mr. Butler can be found in the Appendix on page ?.]
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    Mr. MCHUGH. Dr. Schwartz.

    Dr. SCHWARTZ. Chairman McHugh, Dr. Snyder and distinguished members of the Subcommittee, The Military Coalition appreciates the opportunity to present our views on the Defense Health Care Program for your consideration. First, we want to reiterate our gratitude for the landmark health care initiatives implemented last year, especially for Medicare-eligible beneficiaries and for active duty families.
    The TRICARE Senior Pharmacy program is winning rave reviews and TRICARE For Life is maturing, as intended, with the resolution of some initial startup issues. The Coalition appreciates that last year your efforts resulted in full funding of the Defense Health Program for the first time in many years. We believe that full funding is essential to sustaining this program so critical to the welfare of the uniformed services community.
    One lingering concern The Coalition has is for TRICARE For Life eligibles under the age of 65, whom the Defense Department is still excluding from electronics claims processing with Medicare. As a result, these disabled beneficiaries are unable to use many Medicare providers and are stuck with filing paper TRICARE claims in addition to their Medicare claims. We hope the Subcommittee will help encourage DOD to provide equal treatment for all Medicare eligibles, as intended by law.
    The Coalition also urges the Subcommittee's aggressive action on several issues affecting younger beneficiaries. Despite the numerous initiatives the Subcommittee has promoted, our members in many areas still have difficulty in finding providers willing to accept TRICARE patients. These providers complain of low and slow payments, as well as burdensome administrative requirements. A major problem is the TRICARE fees are tied to Medicare rates.
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    Medicare reimbursement has been declining, despite rising provider costs. As more providers are refusing to take new Medicare patients or are dropping out of the program, they are also becoming more reluctant to become TRICARE providers. While it is reported that provider participation is at its highest level, the question to ask is, ''Are you taking any new patients today?''
    The Coalition urges the Subcommittee to consider additional steps to improving provider participation. Specifically, we hope you will urge DOD to more aggressively use existing authority to raise TRICARE reimbursements, as necessary, to attract providers, to further reduce TRICARE administrative requirements, and to take additional steps to rapidly expand electronic claims processing.
    The Coalition also urges the Subcommittee to consider further actions to increase the consistency of the TRICARE benefit across all eligible populations. One example is the coordination of TRICARE payments with other insurance. Under TRICARE For Life, TFL acts as a true supplement to Medicare and pays whatever Medicare does not; but for other types of insurance, TRICARE will pay nothing if the other insurance pays as much as TRICARE would.
    Until several years ago, TRICARE paid the other insurance's copayment, but a DOD policy change eliminated that practice. This unfairly shifts costs to beneficiaries who happen to have other insurance and effectively denies them any TRICARE benefit. We urge the Subcommittee to restore TRICARE as a true second payer to other health insurance and reinstate the same coordination of benefits methodology afforded to TFL beneficiaries.
    For active duty beneficiaries, The Coalition is grateful for the Subcommittee's authorization of TRICARE Prime Remote for families assigned where TRICARE Prime is not available. However, the wording of the law has yielded some unintended adverse consequences. The law specifies that family members are eligible only if they reside with a service member in a TRICARE Prime Remote ZIP code. Ironically, this means that an eligible family member will lose the benefit if the service member is subsequently assigned to an unaccompanied assignment and the family is unable to follow.
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    Similarly, activated Reservists are often sent to in-process at one point and deployed to another. Again, this denies Prime Remote eligibility to their families. The Coalition urges the Subcommittee to amend TRICARE Prime Remote eligibility rules to cover family members who are unable to reside with a service member.
    Finally, we urge the Subcommittee to authorize TRICARE cover options for Ready Reserve and National Guard members. In some cases Reserve and Guard families have no employer-sponsored or self-insured health care coverage until activated for 30 days or more, making them finally eligible for TRICARE.
    In other instances, families experience considerable problems when they have to switch from civilian coverage to TRICARE upon activation and back again to civilian coverage when deactivated. We are grateful for the TRICARE Reserve Family Demonstration Project to address this transition. During this time of enhanced mobilization of the Guard and Reserve, providing improved continuity of care is not only a matter of equity, but a recruitment and retention issue as well.
    Mr. Chairman and distinguished members of the Subcommittee, we thank you for your strong, continuing efforts to meet the health care needs of the entire uniformed services community. I look forward to answering your questions.
    Mr. MCHUGH. Thank you, Doctor.
    [The prepared statement of Dr. Schwartz can be found in the Appendix on page ?.]
    Mr. MCHUGH. Dr. Storeygard.

    Dr. STOREYGARD. Chairman McHugh, Congressman Snyder and distinguished members of the Subcommittee, thank you for the invitation to speak with you. I have been asked to give you some idea of what it is like to be a doctor dealing with TRICARE and insurance on a daily basis.
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    My name is Alan Storeygard, and I am a family physician. I graduated from Mayo Medical School in Rochester, Minnesota, and completed my family practice residency at Duke University of North Carolina. I have practiced in Jacksonville, Arkansas, for over 20 years.
    Jacksonville is the site of the Little Rock Air Force Base. There are about 32,000 people in our surrounding area with TRICARE insurance. I am the Chairman of our Physician Hospital Organization (PHO). Our PHO represents 75 doctors and our hospital, Rebsamen Regional Medical Center, a 113-bed hospital located 1 mile from the Little Rock Air Force Base. The PHO negotiates with Health Net, our area contractor for TRICARE.
    I will comment on three problems: the preauthorization and referral requirements, reimbursement for services and availability. I will propose some solutions at the end.
    As far as preauthorization and referral problems, as a family doctor, I try to treat any medical problem I can myself, but I arrange specialty referral or a test or a hospitalization if it is necessary to take care of a problem.
    Our TRICARE contractor originally created a dangerous five-day preauthorization process for all referrals, even for patients with urgent medical conditions such as chest pain. It took the Department of Defense, Representative Snyder, both of our Senators and our PHO to change that. Now same-day preauthorization is possible, but only for certain medical conditions. The same cumbersome five-day paperwork remains for other care that is considered nonurgent. These preauthorization requirements are not present in Medicare. Because of this, I have heard TRICARE described by some providers as ''Medicare with an attitude.'' .
    In 1997, Health Net studied 321 TRICARE referrals in our community, and there were only 3 denials. In all three, physical therapy was denied in the local community, but was approved at the air base. This showed that a preauthorization process was not needed. It is very costly to providers and doesn't appear to serve a purpose other than to delay or discourage needed care.
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    As far as reimbursement problems, reimbursement is the key reason physicians and hospitals are not participating in TRICARE. Primary care physicians have to pay rent, personnel, utilities, malpractice insurance and supplies before any doctor salaries are paid. The amount TRICARE reimburses for my most common patient visits doesn't even cover my overhead expenses and doesn't pay for any part of my salary. Our hospitals are in the same predicament. Our hospital is also losing money in an attempt to serve our military families.
    As far as availability, I have checked with my colleagues in Little Rock. Many doctors don't participate there because of low reimbursement and expensive preauthorization requirements. They simply can't afford to see TRICARE patients. So patient choice is reduced.
    Health Net is now commanding that our PHO physicians take a 15 percent cut in their current reimbursement. At this point, I doubt our relationship with TRICARE can continue. We hate to see the care of our military families become further fragmented, but we may be forced to become part of the availability problem.
    As far as solutions, I certainly don't have all the answers, but I have three suggestions. One, do away with all preauthorization requirements. The study done by Health Net itself showed that the process is unnecessary. My administrator estimates that stopping TRICARE preauthorization paperwork requirements would save our clinic alone $25,000 a year in overhead. The savings across the country would be millions of dollars and could be a deciding factor in whether physicians agree to participate with TRICARE.
    Many managed care companies have already stopped preauthorization programs, finding that they were costly, inefficient and unnecessary. This change will cost the taxpayer absolutely nothing and help increase availability. There are very few things in life where you can get something for nothing, but here is one.
    Suggestion number two, end the middle man in this program. Medicare and Medicaid don't have managed care contractors and don't need them. Taxpayer money for those patients goes to patient care, not managed care companies.
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    Number three, increase reimbursement to at least 125 percent of Medicare rates. This is still low compared to most private insurance reimbursement. Our military families deserve this. They are losing their chance right now to compete in the medical marketplace.
    I want to emphasize that we want to continue to take care of TRICARE patients in our community. Please help us to do so. I will be happy to answer any of your questions. Thank you for the opportunity to speak with you.
    Mr. MCHUGH. Thank you, Doctor.
    [The prepared statement of Dr. Storeygard can be found in the Appendix on page ?.]
    Mr. MCHUGH. Mr. White.

    Mr. WHITE. Thank you, Mr. Chairman, and I appreciate the opportunity to have Mrs. Davis here and also the good doctor.
    Pratt Medical Center was founded in 1937. It is Fredericksburg's oldest and largest specialty group practice, with over 50 physicians and physician extenders practicing in 8 locations throughout our service area. And our service area, I wouldn't define as rural. It includes 263,000 people, and we are 50 miles south of the nation's Capital.
    We participate with Medicare and Medicaid programs and the majority of managed care insurance plans offered in our area. And, in fact, Medicare and Medicaid make up about 30 percent of our current reimbursement and historically the TRICARE program is made up of about 3 percent of—.
    Mr. MCHUGH. Mr. White, I apologize for interrupting, but you are getting feedback on your mike—not your fault. Would you push it just a little—that would be great. Let us see if that helps.
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    Mr. WHITE. Thank you. In addition, because the area-wide population is amongst the fastest growing in the state, access to medical care in our community is an issue notwithstanding the pair, and because the rapid growth is projected to continue well into the future, Pratt has been the organization that most consistently—I will try again—invests in the recruitment in establishing new primary care physicians to serve the growing market.
    Mr. MCHUGH. Why don't we switch microphones? And then—.
    Mr. WHITE. In that regard, because of the growth in our area and the access-to-care issues, I would point out that in the past 3 years Pratt has invested in the addition of 6 pediatricians, 5 family practitioners and 5 internal medicine physicians with an average cost of $150,000 per physician to establish the practice in an effort to better meet the access issues.
    We also regularly schedule patients throughout the day, we have evening schedules, we have weekend schedules; and we now use the Net extensively and have improved access by allowing patients to schedule their own appointments on the Internet, both improving patient satisfaction and reducing cost. We also have a strong complement of specialists, extensive lab and x-ray and other ancillary services, an important resource to the 20,000 TRICARE beneficiaries in our area.
    In terms of the TRICARE program, Pratt Medical Center has worked closely with PinnacleHealth, our local hospital organization, for nearly 18 months to try and improve the existing contract with TRICARE. We finally terminated our participation in the program August 31, 2001, based on the following issues and limited success in addressing them.
    The first, reimbursement: TRICARE reimbursement is significantly below Pratt's current reimbursement by comparable managed care plans. It, in general, is in the area of about 40 percent less than managed care payers are paying in our area. Unfortunately, those managed care plans are demanding further rate concessions every day, and what that means is that the historical ability of a practice to cost shift from public to private sector, whether it is Medicare, TRICARE or Medicaid, is becoming nearly impossible in our community.
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    It is also in stark contrast to comments made earlier about the slippery slope that we should all be concerned about. We would argue the slippery slope is already there in that hospital reimbursement in our community, as we best understand it, is at or near billed charges when Pratt Medical Center probably accepts, on average, I would say, a 50 percent discount against its billed charges. And we all live in the same community.
    Further, there was a comment earlier about risk-sharing. I would argue that at least in the physician marketplace in Northern Virginia, the managed care players are moving away from risk-sharing in the form of what has historically been called ''capitation'' and are moving back to fee-for-service. They are doing that because utilization has now been lowered. Physician habits have changed, and they have wrung the cost savings out of that particular methodology.
    The second issue is increased cost—practice cost. As has been pointed out, we are now dealing with a 5.4 percent reduction in Medicare for 2002. The state of Virginia is facing a malpractice crisis. St. Paul has pulled out. Our carrier announced a 68 percent rate increase last month, to us. That is a budget buster. It is over a half million dollars.
    In addition, in the last 3 years, each of the last 3 years, our health insurance carrier, that carrier that provides health insurance for our physicians and staff, has asked for 30 percent rate increases each of those years. We live in an America where unemployment is under two percent, and we have a severe shortage of nursing and ancillary staff.
    The third issue is significant delays in processing referrals and authorizations. It has been pointed to by a variety of people, but we are meeting with a major managed care player in this area tomorrow morning, who has agreed to eliminate the referral and preauthorization process with the Pratt Medical Center.
    The studies that were referenced earlier, I think are abundant. I think that the system is stuck in the connotation of ''we have always done it that way,'' and does not recognize that it is no longer needed. I employ between five and six full-time staff who do nothing but process referrals and preauthorizations.
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    Delays in improving and setting up new providers in the network: here we have significant access problems in Fredericksburg because of growth and, on average, it historically took us six months to get a new doctor credentialed. So we have the new doctor, we have the cost, we have the availability of the physician, and we can't get him credentialed in a timely manner in the system.
    Finally, the dwindling physician network. Although Pratt has made it to the table today, the fact of the matter is that there are probably 300 people on the medical—physicians on the medical staff at Mary Washington Hospital. Pratt has about 47 of those people. I think that the reason that we are here today is because we were the last, really, of the major physician groups to drop our participation and not the first. There are approximately 17 primary care physicians in the service area currently accepting TRICARE, or participating with TRICARE, and of those, few are accepting new patients. That has all been pushed over to the Mary Washington Hospital emergency room where the average wait is four to five hours for care.
    As a result, on May 15th, we sent TRICARE a letter, because we were unable to make any serious progress, indicating that we would terminate our participation. In doing so, we agreed that Prime patients who are covered under the managed care program would be treated as self-pay, but we would continue to treat patients who are covered by Standard and Extra under the TRICARE program on an assigned basis. There would be a much more severe access problem in Fredericksburg had we totally terminated our care of those patients.
    Pratt's goal in all of this has been to bring the issues to the fore with the notion of creating a constructive process of change and not leaving the program. So it is important to understand that we still see a tremendous number of TRICARE patients and accept assignment, although with the Medicare cuts, it is becoming increasingly difficult for us to continue to take that particular stance.
    We too would like to recommend some solutions. It has already been pointed out by a variety of people that reimbursement is a significant issue. We believe that reimbursement needs to be paid at market rates. Market rates vary from local to local area. The cost of living in Fredericksburg, Virginia, is not the same as New York City, nor the same as Presque Isle, Maine. That recognition needs to be there on that side. We believe that the authority to make those reimbursement changes is already in existence, and I think that has been pointed out by a variety of speakers.
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    In addition, we believe that the referral and authorization process in the short term needs to be substantially improved to 48 hours or less. I am glad to hear about electronic submission, and I hope that will work and help. The reality is that a study needs to be done to look at whether you need it at all, and I think the suggestions that would point us toward measuring utilization and changing utilization post facto make much more sense from a system perspective, beneficiary perspective, insured perspective, than the current process.
    And in terms of credentialing new physicians, TRICARE has got to find a way to take the burden off the credentialing process if, in fact, they want organizations such as the Pratt Medical Center to continue to recruit to meet the access requirements of the program.
    Finally, and I think probably the most important thing and one that I don't think we have heard enough today, would be two words. The first would be ''innovation,'' and the second would be ''partnership.''
    On the innovation side, we are working with the managed care payers and with the hospital and other folks in our community; our Web initiatives for scheduling appointments, electronic statements; we are moving toward on-line communication with our patients to eliminate the need for patient visits in many cases where they are not required; we are moving to electronic prescription writing; we are using electronic billing and return of remittances electronically so those are posted.
    Beyond the issue of reimbursement is the issue of cost, and if we could lower our cost, that is an increase, in effect, in reimbursement for practices like Pratt. We would argue that innovation needs to be part of the process.
    The program allows demonstration programs. We believe the program should seek out physician practices who are willing to participate in demonstration grants, and then we should go about sunsetting all the current rules in those demonstration grants and looking for new and creative ways to do business. We think working together as partners is the only way we will solve this.
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    Finally, I would simply say that any system which bases reimbursement on Medicare rates is flawed from the get-go. We would close our doors tomorrow if 100 percent of our reimbursement had to be dependent upon Medicare or Medicaid or TRICARE.
    We have had the benefit for years of cost-shifting. I would agree with the prior speakers, it is vanishing, and it is going to force us to reduce the amount of care we are able to provide to what we believe are very important people in our area. Thank you, Mr. Chairman.
    Mr. MCHUGH. Thank you. I appreciate all of your comments and for each and every one of you taking time out to be with us here this evening now. We are indebted to the stellar members of this Subcommittee, Mr. Snyder and Mrs. Davis, for recommending and bringing the final two panelists to our attention and arranging for their appearance here today, Dr. Storeygard and Mr. White, in that order.
    So I think we will go a little bit out of form here, and I would like to yield to Mr. Snyder for his round of questions to either his constituent or to the panel as a whole.
    Dr. SNYDER. Thank you, Mr. Chairman. Dr. Schwartz, let me address my first question to you. I thought Mr. McIntyre had a pretty good summary, pretty good metaphor, there a while ago when he said that we are at the edge of a cliff, which is another way of saying, ''We are just about to be in a crisis and we haven't figured it out yet.''
    Do you agree with that characterization from the reports that you get from your network of beneficiaries out there?
    Dr. SCHWARTZ. We certainly do, Dr. Snyder, and with the advent of TRICARE For Life, the noise level has risen a great deal more, too. Our members in certain geographies—I don't have statistics, I don't have hard numbers, I only have anecdotes of my members who e-mail us—call us and send us letters saying, ''I am having difficulty finding a Medicare provider.'' And also with the TRICARE, the Standard beneficiaries are the ones we really hear the greatest complaints from, that have trouble finding the providers out in the community.
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    Dr. SNYDER. And from the testimony of the two gentlemen to your left, Mr. White has already gone over the cliff, and it sounds like Dr. Storeygard and his 75 doctors in the hospital in Jacksonville, Arkansas, are at the precipice.
    Dr. Storeygard, I wanted to ask you, what comments do you have with regard to the relationship between doctors and hospitals? I mean, you are in a relatively small town. You heard the exchange earlier. Is it a fair statement to say if one can't—if one doesn't fly, the other can't fly?
    Dr. STOREYGARD. That is a fair statement, and our relationship is very close, and because of that, we formed our Physician Hospital Organization, and I am the Chairman of that, the last five years. And so we negotiate our contracts together—very close and very important.
    Dr. SNYDER. So even if the reimbursement rate was adequate for the physician side, if it is not for the hospital, if they can't accept it, you all have to—would get out? Is that a fair statement?
    Dr. STOREYGARD. That is a fair statement.
    Dr. SNYDER. What percentage—you all have been seeing patients a long time. What percentage of Little Rock Air Force Base—or TRICARE patients are you seeing, do you think, in the area?
    Dr. STOREYGARD. There are about 32,000 TRICARE patients in our surrounding area. Our group, which consists of 13 family physicians, has 4,700, and the air base takes care of about 6,000 on their own. And the rest is throughout the Pulaski County area of Little Rock.
    Dr. SNYDER. Thank you all for being here. I think your testimony added to the generalizations we heard earlier in a very poignant way.
    Thank you, Mr. Chairman.
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    Mr. MCHUGH. I thank the gentleman. Mrs. Davis.
    Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman. And I thank all of you for being here as well. Mr. White, you are absolutely right. You are here because you are the last one I heard from in dropping out of the system, and I am glad you clarified you are not out of TRICARE, just TRICARE Prime. We hope we can do something to get you back to serve our people in the area. Is the—I think it is called the Beneficiary Counseling Assistance Coordinator (BCAC) and Debt Collections Officer (DCO), or a reduction officer or something. Is that working in your program for your members, Mr. White?
    Mr. WHITE. I can honestly tell you I am not familiar with it. So if it is working—.
    Mrs. DAVIS OF VIRGINIA. Must be working, if you haven't heard from them?
    Mr. WHITE. It is not something that has been brought to my attention.
    Mrs. DAVIS OF VIRGINIA. You were shaking your head, yes.
    Dr. SCHWARTZ. I utilize the BCAC and the DCO on a regular basis. When my members have problems in certain geographies, I refer them to their BCAC-DCO in their area, because those are the ombudsmen that work on their behalf. They are assigned to the military treatment facilities, and then they still work the issues out in the community as well.
    Mrs. DAVIS OF VIRGINIA. So you believe it is working for members?
    Ms. SCHWARTZ. Yeah. In fact, if I were contacted by one of your constituents, I would refer them to the BCAC to help them get a provider in the area, but they might not work directly with the providers.
    Mrs. DAVIS OF VIRGINIA. What can we do to get you back into TRICARE, Mr. White? What would it take to get Pratt back in TRICARE Prime?
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    Mr. WHITE. Well, the first would be a commitment by the program to innovation and partnership. We often feel like—we get memorandums and dictums that tell us what it is we are going to do and how we are going to do it, but seldom get the feeling that we are working constructively together. And to Sierra's benefit, it is not so much—I think Sierra, as it is, they too have constraints about what they can and can't do when it comes to innovation and partnership. That would be No. 1.
    And No. 2 would simply be to begin to address more realistically reimbursement rates, because we do not have the ability to shift, and unemployment and all of the expenses that I mentioned. But a few continue to move while reimbursement continues to decline; I can't attract or retain quality doctors in that environment.
    Mrs. DAVIS OF VIRGINIA. And as we all know, the Fredericksburg area, like you said, is just growing by leaps and bounds. It is very large.
    Mr. WHITE. In the next 5 years, it will grow 12 percent, according to the county.
    Mrs. DAVIS OF VIRGINIA. Right, and the surrounding area around it. I want to thank you personally for coming here today, and I hope you knew why we wanted you here. But thank you so much and thank all of you for being here.
    Mr. MCHUGH. And I want to associate myself with the gentlelady's comments. We do deeply appreciate your being here. I hope you have heard, as you have sat with enormous patience, many of the particular points, as Dr. Snyder said, that you have made, that have kind of underscored where we have been, are obviously of concern to us as well, whether it is preauthorization, reimbursement rates, the cumbersome nature of the entire process, how we increase physician participation.
    So to have your more direct experience as part of this record, I think, will help our colleagues to share in those concerns as well, and hopefully help us help DOD and, ultimately, where it is appropriate, the provider networks with some guidance as we go forward. Mr. White or Dr. Schwartz and Mr. White kind of touched on that in response to Mrs. Davis' comment, but let me go to Dr. Storeygard.
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    We heard about low reimbursement rates, slow reimbursement rates and cumbersome, frustrating aspects of just winding your way through the system. If you had to pick one of the most challenging aspects of participating, what would it be? Would it be the reimbursement rate? Would it be the administrative burdens? I know they are all important, but I am just—I am trying to get an understanding.
    Dr. STOREYGARD. If I could represent my colleagues, I think reimbursement would be No. 1, but I think the most doable first thing is the preauthorization requirements, because it dramatically increases our personnel overhead in our offices. We employ three-and-a-half full-time people to just do nothing but referrals and schedule things; and just eliminating the TRICARE preauthorization, we estimate we could eliminate one full-time physician, which would be about $25,000 a year. That would be immediate.
    But I think in representing my community and my physicians, reimbursement is Number one. It is admirable to want to try to continue to get more for less, but that has gone on for five, six years now; and as you continue to get more—try to get more and more for less and less, what I think you are at right now is you are getting less for less. You are getting less availability, less participation. And the very worst thing about this is, you are probably going to get less quality of medical care for the patients. When their care becomes—it takes longer to diagnose or treat a problem because of this referral process, going on two or three days, five days, it can impact quality of care; and I think that is extremely important.
    Mr. MCHUGH. Thank you. Mr. White, do you want to add to that?
    Mr. WHITE. I would appreciate that. I think that when the emergency room becomes your primary care physician, you have introduced yourself to higher cost and, clearly, fragmented care. So from the get-go, that is what we are watching happen in the Fredericksburg market.
    Again, we are continuing to accept new TRICARE patients who happen to be covered by Standard or Extra, and I think because we are one of the few practices, we are doing anything with TRICARE in the community, it has helped keep the noise level down. Had we literally on the 31st said, ''We are saying good-bye to our current TRICARE and we will see no new TRICARE,'' I think the noise level would have been substantially higher. We are committed to the patients, and I will tell you that my physicians do not treat a TRICARE patient differently than they treat an Aetna patient or a Blue Shield patient. And worse than all of that, my cost structure is actually higher to treat the TRICARE patient because of the administrative burdens. It is upside down.
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    Mr. MCHUGH. Uh-huh. Dr. Schwartz, Mr. Butler, I don't know, you don't have the exact same percentage, but anecdotes from my perspective are important. What kind of things are you hearing, reimbursement?
    Mr. BUTLER. Our members aren't shy, and we hear from them daily about the problems that they are having; reimbursement is a big problem, as well as access to health care. Quality of health care in some cases is a problem, but the majority of our members are Medicare-eligible now, and with the new TRICARE For Life, it has been a big asset for them. But if they can't get in to see a Medicare doctor, it doesn't do them any good at all. So, you know, access and reimbursement are two very important things.
    Mr. MCHUGH. Dr. Schwartz?
    Dr. SCHWARTZ. Our members have great access to e-mail and they use it liberally.
    Actually, within the past 24 hours I have two anecdotes and I apologize for death by anecdote, but one of our members up in Alaska, at Elmendorf, a TRICARE For Life beneficiary, his wife, was able to get into the TRICARE Plus program at Elmendorf through lottery, and he was left to go back to the community for Medicare. She is being taken care of. He couldn't find a TRICARE provider—excuse me, a Medicare provider. So subsequently, he is using the VA at Elmendorf, but we know there are issues in Elmendorf also with deployment of the medical staff there. There are fewer providers to bring in the VA patients.
    And the second was, one of our board members who lives in Nashville and—he is a younger retiree and he was looking for pediatricians to take care of his children. He related that there were ten pediatricians in the area and only two are taking new patients. So he subsequently had to go to his private insurance. He pays $450 a month. So we hear it all the time. I understand what the providers are going through. They want an honest day's pay for an honest day's work, and I understand that this is a bigger problem. As has been mentioned earlier, it is the big picture, it is the Federal Government, it is Medicare, it is reimbursement. But the bottom line is, the patients, the beneficiaries, are being caught in the middle. And in this great debate over Medicare reimbursement, the bottom line is, it is going to trickle down to our folks, and the noise level is only going to continue to rise.
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    When we see on the front page of the New York Times, providers aren't taking Medicare patients, it is just all going to start to trickle down; and I would say by the end of the summer, it is going to be quite painful for our folks.
    Mr. MCHUGH. Well, that—Vic Snyder just said the cliff. And that goes to the point that I tried to make to the Secretary in the first panel.
    It is great, as we do, as politicians, to go home with a pamphlet to show what a terrific program that we constructed. And we did, and the intention obviously is very, very good, in that we want these services that we have provided in the law to be obtained. But if you can't get to the doc, it doesn't do any good; and I am afraid—my friend from Arkansas mentioned how we have kind of gone from brunt of attack to points of praise for doing what we have done. But if we don't—if this ends up being a hollow promise, because the docs are not participating for whatever reason, or reasons, we are going to be more of a target than ever before and probably rightfully so.
    So it is an enormously important point, and it is why it was important for you to be here to say that it is anecdotally, to the extent you deal with your clients and such, and you as administrators and people who represent the physician community. But this is real, and we have got to get very, very serious about it.
    I heard Dr. Schwartz praise the Senior Pharmacy Program. Anything you would like to add to it? Anything we could do to perhaps make it even better?
    Dr. SCHWARTZ. Well, I would say if we are fortunate enough to come back to the Committee next year, we will have some discussions about the implementation of the uniform formulary, which is obviously a cost measure that needs to be instituted. You know, beneficiary advocates are taxpayers also, and we understand and—I think it was the Fiscal Year 2000 National Defense Authorization Act (NDAA), mandated the uniform formulary to be implemented, and our hope is that the communication to the beneficiaries is adequate, that when they go to the point of service and that prescription is not on the formulary—and their cost share is probably going to be $20, $25—I would say the reaction is going to be less than positive.
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    So it is incumbent upon us as beneficiary associations, and upon TMA, to communicate to the beneficiaries this change is coming, this is why the change is coming, and if you need a medication, these are the steps you have to take to get the prior authorization to get it. So that is going to be our next challenge. So we will see you next year.
    Mr. MCHUGH. Well, democracy is a wonderful thing, but it can play tricks on us. We have elections this fall. We will see you this year.
    Dr. SCHWARTZ. Yes, and I am an employee at will. So I hope you see me next year.
    Mr. MCHUGH. We will send your quote to our opponents. Mr. Butler, do you want to comment on that at all?
    Mr. BUTLER. Just as I mentioned in my testimony, we think that for the Senior Pharmacy Program, we should try to do away with the Part B requirement to use that program. It looks like it is not going to have that big of an impact financially, and that would make the Senior Pharmacy Program that much more attractive. Believe me, I talk to people all the time that aren't military beneficiaries, who are over 65, and they wish they had something like our folks have. But that would be one thing to consider is, do away with Part B.
    Mr. MCHUGH. Thank you. You heard us spend a lot of time with respect to the first two panels on the next generation of contracts.
    Particularly for Mr. Butler and Dr. Schwartz, but certainly I would be interested in Dr. Storeygard's and Mr. White's input, to the extent they choose to. Just generally, how do you feel about that? What is your level of confidence? What concerns, if any, do you have about how it may affect the groups that you represent in their continuum of care? Anything that comes immediately to mind?
    Mr. Butler.
    Mr. BUTLER. Just a couple of points on that. The things that are important to our members are maximum choice. We want to try to make in the new contracts maximum choice for their health care. We want to try to make the incentives as positive as we can, make our folks feel welcome when they go to the MTFs, keep the costs down, wherever they decide to get their health care, and not punitive. We don't want to force them to use any one component of our military health care system.
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    We want to keep the benefit at least the same as it is and, hopefully, improve it without any backtracking at all. And very important, I think, is a seamless transition from any old contract to a new contract; and we think we can help with that. As—you know, help DOD with that. We are heavily involved with the TRICARE For Life implementation. We have had roughly 60 meetings so far with TMA, and we would hope that that type of model will be used for any type of contract transitions.
    Mr. MCHUGH. Yeah. That is an important point. I didn't get a chance to put it on the open hearing record, but one of our follow-up questions will be, what plans do you have to transition from the old to the new, because that is obviously vital. And I deeply, as I said in my opening statement, appreciate you, Doctor, and you, Mr. Butler, for your organization's effort on TRICARE For Life and keeping your people informed; and I think that has been a critical component to a pretty amazing success thus far.
    A lot of challenges ahead, but given the dimensions that were before all of you, it has been quite an achievement, particularly by Washington standards, and I commend you for that. Mr. White, Dr. Storeygard, I don't know if you have any thoughts on the comment about the Senior Pharmacy Program, or anything else.
    Dr. STOREYGARD. About the contracts, we are—.
    Mr. MCHUGH. Contracts. I am sorry.
    Dr. STOREYGARD. We are in contract renegotiation right now. So we are very interested in all aspects of the—of whatever contract we can negotiate; and the points that we are interested in are the ones that I expounded on. I want to talk about availability just for a second.
    Mr. MCHUGH. Sure.
    Dr. STOREYGARD. Congressman Snyder mentioned some red flags going up. You know, the big picture, if our group does not continue to participate, it is not going to be the end of the world for the country, but I think it is a red flag. And I would ask—I would guess that there are military bases around the whole country that have groups like ours that are strategically located within a mile or two of the base that are very willing and want to continue to treat TRICARE patients. And I think we are kind of the goldfish in the mine, and we are getting real short of breath, and he may already have passed out. But you know this is a red flag. This isn't just our group. This is across the country, and, you know, we hope we can negotiate a successful contract and continue to take care of our patients who are our neighbors and our friends in the community. I don't know what will be in the contracts, but we are going to try to do our best.
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    Mr. MCHUGH. We appreciate that.
    Am I being unfair, Mr. White and Dr. Storeygard, if I say within certain parameters, which I think you would say you have played to the limit over the last four or five years—at the end of the day, you have still got to make a business decision. Is that fair?
    Dr. STOREYGARD. That is true. We are small business, and we have to employ our—we have overhead costs and have employees; and the numbers have to add up, or we have to lay people off.
    Mr. MCHUGH. Or at least not be horrendously punitive, which I think is—.
    Dr. STOREYGARD. Right. We would like to generate our own salary. We are not—what I am being paid right now does not generate my salary. It doesn't generate the overhead for my group.
    Mr. MCHUGH. I understand that. Mr. White, I kind of jumped in. I don't know if you want to comment on that.
    Mr. WHITE. No. I think clearly the system needs a short-term fix in our neighborhood, and we made a conscious effort to stay in the program in the methodology we have described because we wanted to send the message that we are seeking solutions. We are not interested in burying our heads in the sand.
    Our only mission is to care for people, and it is very discouraging when the insurance system comes between patient care, quality patient care, and access, particularly when the issues are as clear as they are and, at least in many cases, quite fixable if people will put their heads together and be about it.
    Mr. MCHUGH. Yeah, I appreciate that. And obviously I don't have the depth of understanding of your particular situation as Congresswoman Davis does, but my impression is that you have shown that you are concerned about the patients, or you would have withdrawn in a very different way and made very different decisions. And as someone who is from the older view, concerned about this program working, I appreciate that; and I appreciate your willingness to be here and to reemphasize that, that, you know, let us work together.
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    I can tell you even if you would contemplate, which I doubt you would, but if you would contemplate burying your head in the sand, your representative here would not follow suit. She has been very admirably aggressive, as has Dr. Snyder, in trying to work these things out.
    Well, I don't know about you, but—actually, the Reserved Officers Association (ROA), has a reception—.
    Dr. SCHWARTZ. The Retired Officers Association (TROA).
    Mr. MCHUGH. Sorry, no. I was going to say, ROA has a reception.
    Dr. SCHWARTZ. Oh, does ROA? Well, TROA does, too, if you want to come to a party.
    Mr. MCHUGH. Well, a lot of parties we have to go to tonight. Again, if we have some written questions as follow-up, we would deeply appreciate your taking time out of what I know is a very busy schedule to assist us in filling out the record on that.
    But thank you so much for being here, for your patience, for all that you are doing both on behalf of those whom you represent and those whom you are trying to care for. And I hope that we can all continue to work together and make this better and step back from the cliff that some of us are concerned about. So thank you. You are great for being here.
    And, with that, we would adjourn the Subcommittee hearing. Thank you all for staying.
    [Whereupon, at 6:07 p.m., the Subcommittee was adjourned.]