Chronic Pain

n late June, the White House sent Congress an amended budget request for more than $18 billion in extra Defense funding for 2002, the largest Defense budget increase since the Reagan military buildup of the mid-1980s. But unlike Reagan-era military budgets, the 2002 request (which had not been approved by lawmakers at press time) includes virtually no extra funding for new ships, tanks and aircraft. Rather, most of the extra funding would pay for the long-overdue maintenance of equipment and facilities, the replacement of dilapidated housing and shoring up health care.

In fact, one-third of the "get well" budget increase, as one Pentagon official describes it, would fund military health care accounts. The added $6 billion would raise the Defense health care budget to $17.9 billion, a stunning 48 percent increase over the Pentagon's 2001 request. The increase would cover new benefits authorized by Congress last year, as well as anticipated increases in health care and pharmacy costs. The $17.9 billion doesn't include the salaries of military medical personnel, which are counted in the services' personnel budgets. When personnel costs are factored in, the estimate of health care costs for 2002 rises to about $24 billion.

For nearly a decade, the Pentagon has failed to budget adequately for health care. Budget officials repeatedly have had to shift funds from other accounts to cover mounting costs. They've also made annual pilgrimages to Capitol Hill to seek supplemental funding. In recent years, Congress has approved supplemental funding for health care in excess of $1 billion a year. A number of factors have contributed to the chronic funding shortfalls:

• Health care costs over the last decade have escalated far more rapidly than most analysts predicted.
• Congress repeatedly has expanded health care benefits without appropriating additional funds to pay for them.
• The Defense Department continually low-balls its estimates. The cost of health care in the private sector has been rising between 10 percent and 15 percent annually in recent years, but the Pentagon has programmed annual budget increases at about 2 percent. In the private sector, when health care costs exceed estimates, employers routinely pass more of the cost-sharing burden to employees, but that's not an option for the Defense Department

Defense officials aren't sure how much the expanded benefit will cost, or even how many eligible retirees will take advantage of it-presumably most, since the benefits are vastly more generous than Medicare and what most private health insurance programs provide. Defense officials are budgeting $3.9 billion next year to cover the 1.5 million new beneficiaries they anticipate will enroll in Tricare. One thing is certain: As a group, older retirees consume more medical care and drugs, both in terms of quantity and in terms of cost, than any other demographic group.

More Than an HMO

In June, when a young sergeant patrolling the rugged terrain in Kosovo stepped on a land mine, Army medic Christine Roberts responded in standard military fashion-she boarded a UH-60 Black Hawk medical evacuation helicopter with other team members and, using a device to penetrate heavy foliage, she lowered herself through the trees where, probing for land mines all the while, she was able to reach the sergeant, stop the bleeding from his severed leg with a tourniquet, and pull him out with the help of her teammates. Minutes later, the medical rescue team delivered the sergeant to a mobile military hospital in Kosovo. The next day, still black and blue from the rescue operation, Roberts returned to the scene with military explosives experts to retrieve sensitive equipment. Fourteen land mines were found at the site, attesting to both Roberts' skill and courage. As for the young sergeant who was unlucky enough to find the minefield in the first place, he's now at Walter Reed Army Medical Center in Washington, in the care of one of the top orthopedic medical teams in the world.

The incident illustrates the complexities of military medicine. Lt. Gen. James Peake, the Army's surgeon general, relates the Army medic's story for two reasons: First, he is understandably proud of his troops and of Roberts in particular; and second, he believes most people don't fully appreciate the tremendous scope of responsibility medical personnel carry.

"We are a lot more than an HMO," says Peake. Not only must the military provide an adequate level of health care to active duty personnel, their families and retirees, but military health care providers also must be able to deploy with the troops. For military medical personnel to be effective in the field, they must get good training in the hospitals and clinics they serve at home. Part of that training comes from treating a range of patients, and part of it comes from having adequate facilities and resources-something military personnel increasingly lack. As costs have soared, maintenance and new equipment purchases have been deferred, limiting the capacity of military treatment centers.

Under Tricare, beneficiaries, whether they are on active duty, retired or dependent family members, are treated at military facilities when space is available and when treatment is appropriate. If facilities are full, too far away, or lack necessary equipment or medical specialists, patients are treated by civilian providers participating in the Tricare program.

For several reasons, the Defense Department likes to treat beneficiaries in military treatment facilities whenever possible. For one thing, it is generally less expensive to provide treatment in-house. But just as important, military officials say, their medical personnel need the experience of working in a vibrant medical system-and a vibrant system must have patients. For that reason, and because most military officials believe it is the right thing to do anyway, the military has embraced expanded coverage for retirees and their families.

But while the pool of beneficiaries has been expanding, the military has been shrinking, making it more and more difficult for the military medical system to accommodate its growing patient load. As a result, patients increasingly have been forced to use civilian-provider networks. Throughout the 1990s, the military cut about one-third of its troops and shuttered more than half of its hospitals and clinics. In 1987, the department maintained 168 hospitals and 1,019 clinics; now it has 78 hospitals and 511 clinics. The Army, the largest of the services, estimates it had about 7,800 hospital beds in 1980. Today, worldwide, it has fewer than 1,800.

Managing Care

The Defense health care program is an entitlement program-by law, beneficiaries are entitled to care, and civilian managed-care contractors must be paid, even if there isn't enough money in the Defense health care accounts to cover their bills. Thus Congress repeatedly has had to bail out the program. Nevertheless, the chronic under-funding has taken a toll on the entire military medical system. Funds in discretionary accounts, such as hospital maintenance or medical equipment procurement, regularly have been shifted to cover contractor health care bills. The civilian providers in the managed care networks were meant to supplement the care provided by military practitioners in military facilities, not supplant it. But a lack of critical resources in military hospitals and clinics has forced the services to send more people to civilian contractors, which drives up costs, further exacerbating the financial pressure on the military medical system.

Deteriorating facilities, lack of up-to-date equipment and insufficient numbers of specialists and support staff are serious problems at some military hospitals and clinics, Defense officials say. Vice Adm. Richard Nelson, surgeon general of the Navy, told members of the House Armed Services Committee in July, "The underfunding of our direct care system and the late [passage of supplemental funding] have broken the system worse than most anybody recognizes."

At the same hearing, David Chu, undersecretary of Defense for personnel and readiness, asked lawmakers to give the department more flexibility in managing the health care budget, rather than stipulating where funds are spent, such as for contractor-provided care or for military treatment facilities. Chu said more flexibility would allow the department to invest more money in military facilities in order to recapture some funds now being spent on civilian contractors.

Army Surgeon General Peake says he and the other services' surgeons general support Chu's request. "We have to optimize military facilities," he says. Quality health care has long been known to be a critical benefit for recruiting and keeping military personnel. But attracting and retaining medical personnel are equally important.

Pay for military doctors and other health care specialists has fallen woefully behind that of civilian practitioners-the pay gap for some surgical specialists exceeds $100,000 per year, according to a study by the Center for Naval Analysis. And while private hospitals and outpatient facilities are having a hard time hiring enough nurses, the military is having an even harder time. "But pay is only part of the issue," Peake says. Having adequate equipment, facilities and support staff so doctors can focus on medicine, as opposed to managing medical records or escorting patients from waiting rooms to examination rooms, is just as critical.

Air Force Col. George Cargill, executive director of Tricare's Northwest Region, which includes Washington, Oregon and a small part of northern Idaho, agrees. "Retention of existing staff is critical. People want to work in a good environment-they want to be able to do a good job," he says. Cargill is directing a pilot project that officials hope will lead to significant savings by improving management of military facilities. By giving the regional lead agent-each of the 11 Tricare regions has a lead agent to facilitate care-additional authority to manage care on a regional basis, military officials believe they can show that targeted investments in hospitals and clinics, whether to address critical staffing needs or to upgrade equipment, will generate savings.

Under the pilot program, the Northwest Region has been able to create what is essentially a multi-specialty, multi-facility group practice, using medical personnel from all the facilities in the region, says Cargill. The doctors serve in other regional facilities besides the ones to which they're assigned, increasing the capacity of hospitals to treat patients.

Costly Patients

Forging an integrated health care delivery system from military treatment facilities run by the services and managed care networks of civilian pro-viders has presented a huge challenge for the Defense Department. The scope of the system and its management requirements, from maintaining medical records to calculating costs, dwarfs other managed care systems. "Clearly, if you were going to start from scratch and build up a medical system, it would not look like the infrastructure they have today," says Stephen Backhus, director of veterans' and military health care issues for the Gen-eral Accounting Office. "Many military facilities were built at a time when health care was delivered differently. Large, older facilities are often not conducive to the ambulatory care and sophisticated outpatient care that is the typically done now."

The nationwide Tricare system has been fully operational only since 1998. The program has had significant growing pains, but by and large, Backhus gives it high marks. "I think they're doing a good job and I haven't always felt that way. They started out poorly, especially when you consider all the testing they did before going live, but they have really attacked some of these difficult programs and made significant progress." Early problems with the program, which included slow and inaccurate claims processing and inadequate numbers of specialty care providers, have largely been addressed, he says.

Thomas Carrato, Tricare's director, says implementing the Tricare benefit for retirees over 65 will be a significant challenge. "There are some unknowns there," he says, which make it difficult to assess the impact of the new beneficiaries on the program. In most cases, Tricare will function as a secondary payer after Medicare. But where Tricare offers benefits not available under Medicare, the level of consumption is hard to gauge. In particular, Tricare covers prescription drugs and some skilled nursing care not covered by Medicare-both of which could be very expensive. "We consulted with some actuaries to help us try to predict those costs, but until we actually have some experience, we don't know," says Carrato.

Prescription drug costs are likely to be a major source of increased spending. In recent years, drug costs have grown sharply, between 15 percent and 24 percent annually. A study by the National Institute for Health Care Management released in May showed overall spending on retail outpatient prescription drugs rose 18.8 percent between 1999 and 2000. At Defense, total drug costs were up 22 percent between 1999 and 2000, a trend that has been increasing. In fact, from 1995 to 2000, total spending on drugs for Defense more than doubled, from $798 million to $1.6 billion. With the influx of 1.5 million older retirees into Tricare, the rate is likely to increase even more steeply.

Defense began covering the cost of prescription drugs for retirees over 65 on April 1. While it's not clear yet how many of the newly eligible retirees will take advantage of it, early indications are it will be a tremendously popular benefit. Stephen McManus, deputy director of medical materiel at the Defense Supply Center Philadelphia, the arm of the Defense Logistics Agency that administers the Defense Department's national mail-order pharmacy program, says the new beneficiaries are likely to be some of the biggest users of pharmaceuticals. "By and large, those people are going to be taking long-term medications and some very expensive ones. What they're going to be using is fairly predictable, but how many people will take advantage of a particular benefit is the real question. Because the over-65 population is such a disproportionate user, even though the eligible beneficiaries only expanded about 25 percent, the usage [of the mail-order program] has nearly doubled," says McManus.

Dr. David Howes, president and chief medical officer of Martin's Point Health Care, a private health care facility in Portland, Maine, that has provided contract health care to military retirees for 20 years, warns that older retirees have unique health care needs that Tricare officials would do well to anticipate. They have twice as many patient visits per year. And they use five to 10 times as many hospital beds."

Privately, some Defense health officials worry that the health care budget will again come up short, despite the 48 percent increase requested. If that's the case, the biggest losers won't be the contract health care providers or even most patients-contractors will be paid and patients will receive care, even if Congress has to bail out the program again next year. The real losers, officials fear, will be the men and women in uniform who depend on a military medical system healthy enough to care for them on the battlefield.