Deputy Assistant Secretary of Defense for Health Affairs Health Budgets & Financial Policy

1. Forward Together: The Military Health System Allen W. Middleton Deputy Assistant Secretary of Defense for Health Affairs Health Budgets & Financial Policy March 24, 2011

2. Overview The Basics Challenges Strategic View Key Components of Change Key Partnership Skills Going Forward

3. MHS Mission In Peace & War Deploy to Support the Combatant Commanders Patient Care, Sustain Skills and Training Promote & Protect Health of the Force and to Deploy Medical Force Deploy A Healthy Force Deploy A Healthy Force Manage Beneficiary Care Manage Beneficiary Care Manage Beneficiary Care 9 3

4. 2011 MHS SNAPSHOT 138 thousand military and civilian medical personnel $51.1 billion Total Budget Authority* 9.6 million Beneficiaries 926 Medical, Dental and Veterinary Clinics 56 Inpatient Facilities

5. Complicated: DoD Health Benefit • TRICARE Managed Care Legislation • Automatic enrollment for Active Duty • Space required for TRICARE Prime enrollees • Space available for non-enrollees • Extended TRICARE benefits for survivors of Active Duty (AD) • Limit pharmacy deductibles/co-pays for nursing home residents • Enhancement of TRICARE Reserve Select coverage • TRICARE Plus • TRICARE For Life • TRICARE Prime Remote for AD Family Members • Further Expansion • Prime Remote for Active Duty • TRICARE provider rates >= Medicare • Beneficiary counseling & assistance coordinators • Transitional Assistance Management Program (TAMP) Extension • Guard/Reserve TRICARE (Early Eligibility, Reserve Family demo) • Elimination of Non-Availability Statements (NAS) • Title 10 Legislated Benefit • Space required for Active Duty • Space available for Families and Retirees • Wounded Warrior Benefits (Respite Care) • CHAMPUS Legislated Benefit • Civilian health care where MTFs do not exist • Families and Retirees <65 • Expansion of TRICARE Reserve Select coverage to all reservists • Three-year extension of Joint DoD/VA Incentive Program • Planning/Management – claims processing standardization • Expanded disease management programs • Coverage of forensic exams for sexual assaults • Dental anesthesia for pediatric cases • TRICARE Online • TRICARE implements HIPAA Patient Privacy Standard • Elimination of co-pays for AD Family Members • TRICARE Triple Option Benefits • Prime, Extra and Standard • TRICARE Senior Prime demonstration • Enhanced Benefit • Catastrophic Cap reduced to $3,000 • Enhanced TRICARE Retiree Dental Program • TRICARE Senior Pharmacy • Elimination of Prime co-pays for AD Family Members • Extension of Medical and Dental benefits to Survivors School Physicals • Entitlement for Medal of Honor recipients • TRICARE Prime Travel Entitlement • Chiropractic Care Program • TRICARE Reserve Select • Extended Health Care Option/Home Health Care (ECHO/EHHC) • TRICARE Maternity Care options • 5

6. FY 2012 DoD Health Care Costs: $52,535M 80% of total cost driven by either contributions to MERCHF or O&M 79% of O&M driven by patient care Operation & Maintenance ($30,903)

7. Relative BAG Size Private Sector In-House Care Cons’d Health Educ and Training Base Ops IM/IT Mgt Act Size of BAG corresponds to width of circle

8. FY 2012 – Total DHP vs. DHP IM/IT FY 2012 Total DHP$32,198.770M FY 2012 DHP IM/IT$2,079.258M Army Medical IM/IT$258.186M 12.42% Central IM/IT$1,303.822M62.70% DHP IM/IT$2,079.258M6.46% DHP Non-IM/IT$30,119.512M93.54% Navy Medical IM/IT$200.553M9.65% Air Force Medical IM/IT$160.792M7.73% TMA OperationsIM/IT$155.905M7.50% 8 IM/IT - Information Management/Information Technology

9. 2.5 million PRESCRIPTIONS 910,000 direct care 1.41 million retail pharmacies 223,000 home delivery 179,300 BEHAVIORAL HEALTH OUTPATIENT services 46,100 direct care 133,200 purchased care 21,800 INPATIENT ADMISSIONS 5,000 direct care 16,800 purchased care 1.6 million OUTPATIENT VISITS 737,000 direct care 876,400 purchased care 2,300 BIRTHS 1,000 direct care 1,300 purchased care 3.5 million CLAIMS processed 12.6 million ELECTRONIC HEALTH RECORD MESSAGES A Week in the Life of the MHS Behavioral HealthOutpatient Visits Active Duty Family Active Duty 9

10. Raising the Bar…. Dr. Robert Gates Secretary of Defense 2 May 2007 “…Our nation is truly blessed that so many talented and patriotic young people have stepped forward to serve. They deserve the very best facilities and care to recuperate from their injuries and ample assistance to navigate the next step in their lives, and that is what we intend to give them.Apart from the war itself, this department and I have no higher priority.” 10

11. The Core Mission: Readiness • Observed vs. Predicted Survival Rate • Battle Wounds in Operation Enduring/Iraqi Freedom • THEATER CARE • Next-generation, quick clotting hemostatic bandages • En-route care during air transportation from theater (ICU on a plane) • Negative Pressure Wound Therapy in Combat-Related Injuries to promote wound healing • 31 clinical practice guidelines as a result of Joint Theater Trauma System (JTTS) • MEDICAL EVACUATION • Total Global Patient movements1 137,100 • Total Evacuated2 73,290 (13,478)3 • Return to CONUS as quickly as 72 hours • PREVENTIVE AND PRIMARY CARE MEDICINE • Disease Non-Battle Injury per Week • Operation Joint Guardian (Kosovo) – 8.1% • Desert Shield/Storm – 6.5% • OIF – 4% • Global Patient Movements1 Since 9/11/01 • (000s) 11

12. ReadinessBattlefield Medicine – Unprecedented Success

13. “Necessity not only authorizes but seems to require the measure, for should the disorder infect the army…we should have more to dread from it than from the sword of the enemy.” George Washington (Ordering mandatory smallpox innoculation) “This enlightened decision was as important as any military measure Washington adopted during the war.” - Ron Chernow, Author US Military Healthcare Remarkable History 13

14. Disease, Non-Battle Injuries, and Combat Injuries Service Members Medically Air Transported from CENTCOM Fallujah #1, April 2004 Fallujah #2, November 2004 Surge of 5 Brigades to Iraq Data Source: USTRANSCOM TRAC2ES As of January 4, 2011 Graph from Armed Forces Health Surveillance Center 14

15. Challenges Remain: Psychological Health Service Suicide Rates (CY 2001-2009) Army Health Promotion Risk Reduction Suicide Prevention Report 2010 (AHPR/RR/SP) - July 28, 2010 15

16. ….Change Ahead "I think we need to lay out for Congress how health care is eating the department alive."Secretary Gates - 7 April 2009 16

17. Despite our efforts, costs continue to rise. NHE $ Billions 66.0 46.2 46.3 42.9 39.3 35.6 32.6 30.1 23.7 19.0 17

18. Increases in new eligible beneficiaries 400,000 since 2007 Expanded benefits TRICARE For Life, Reserve Benefits, Traumatic Brain Injury /Psychological Health Increased utilization Existing users are consuming more care (ER, Orthopedics, Behavioral Health) Healthcare inflation Higher than general inflation rate Consistent with civilian healthcare sector Why are the Department’s healthcare costs growing? Military Health SystemHealthcare Utilization Trends Behavioral Health Visits (100% increase in annual support, $500 M to $1B) Active Duty Family Active Duty 18

19. Background on MHS Strategy Over the past two years, the ASD(HA) held annual strategic planning meetings and quarterly strategy review meetings to monitor progress in achieving the goals set forth in the 2008 MHS Strategic Plan.

20. Background on MHS Strategy Over the past two years, the ASD(HA) held annual strategic planning meetings and quarterly strategy review meetings to monitor progress in achieving the goals set forth in the 2008 MHS Strategic Plan. In early 2009, the MHS adopted the Quadruple Aim as a description of our over-arching vision.

21. Background on MHS Strategy • Over the past two years, the ASD(HA) held annual strategic planning meetings and quarterly strategy review meetings to monitor progress in achieving the goals set forth in the 2008 MHS Strategic Plan. • In early 2009, the MHS adopted the Quadruple Aim as a description of our over-arching vision. • MHS leadership established a change agenda consisting of set of strategic imperatives with targets for improved performance.

22. Background on MHS Strategy Over the past two years, the ASD(HA) held annual strategic planning meetings and quarterly strategy review meetings to monitor progress in achieving the goals set forth in the 2008 MHS Strategic Plan. In early 2009, the MHS adopted the Quadruple Aim as a description of our over-arching vision. MHS leadership established a change agenda consisting of set of strategic imperatives with targets for improved performance. To meet those targets, we have implemented a set of strategic and tactical initiatives.

23. The Quadruple Aim 23

24. The Quadruple Aim Readiness Ensuring that the total military force is medically ready to deploy and that the medical force is ready to deliver health care anytime, anywhere in support of the full range of military operations, including humanitarian missions. 24

25. The Quadruple Aim Population Health Reducing the generators of ill health by encouraging healthy behaviors and decreasing the likelihood of illness through focused prevention and the development of increased resilience. 25

26. The Quadruple Aim Experience of Care Providing a care experience that is patient and family centered, compassionate, convenient, equitable, safe and always of the highest quality. 26

27. The Quadruple Aim Per Capita Cost Creating value by focusing on quality, eliminating waste, and reducing unwarranted variation; considering the total cost of care over time, not just the cost of an individual health care activity. 27

28. The Quadruple Aim Readiness Ensuring that the total military force is medically ready to deploy and that the medical force is ready to deliver health care anytime, anywhere in support of the full range of military operations, including humanitarian missions. Population Health Reducing the generators of ill health by encouraging healthy behaviors and decreasing the likelihood of illness through focused prevention and the development of increased resilience. Per Capita Cost Creating value by focusing on quality, eliminating waste, and reducing unwarranted variation; considering the total cost of care over time, not just the cost of an individual health care activity. Experience of Care Providing a care experience that is patient and family centered, compassionate, convenient, equitable, safe and always of the highest quality. 28

29. MHS Strategic Imperatives Scorecard: Adding IM/IT Measure 29 *Denotes change in measure algorithm Current Performance Known and FY10 Target Approved Out-Year Targets Approved Measure Algorithm Developed Design Phase Approved Funded Concept Only

30. Approaching Readiness Goals Not Ready Indeterminate Fully Ready Partially Ready Individual Medical Readiness Target: 80% 74% 80% 82% • To improve performance, commands should focus on completingdelinquent PHAs & dental exams • New for 2011: Examining impact of ‘retained but not deployable’ 62% 30

31. Patient Experience Satisfaction with Military Health Care • Top CustomerService Issues: • Getting appointments, Clinic wait times, Specialist availability, Finding parking Family Member Satisfaction Active Duty Satisfaction Family Member Satisfaction Active Duty Satisfaction 100 80 60 40 20 0 100 80 60 40 20 0 Percent Satisfied Percent Satisfied Jul 03 Aug 05 Aug 07 Aug 09 Jul 03 Aug 05 Aug 07 Aug 09 31

32. MHS Cigarette Use Rate R Active Duty (18-24) cigarette use rate has continued to rise since 2ndQtr, FY10

33. Prevalence of Obesity Among Adults Y The greatest opportunity for lowering the prevalence of obesity is in Retirees and Retiree Dependents. MHS % Obese (BMI ≥30) National Average, Self Reported (27%) Target Healthy People 2010 Goal (15%) 33

34. Air Force HCSC Army Navy Total DC HEDIS Index – Preventive Screens G Overall performance for the direct care system remains strong Note: Y-Axis Set at Non-Zero 34

35. Obesity Among Men: Mil vs Civ and AD vs Ret US Men Age 40-59 Retirees US Men Age 20-39 % of Population with BMI > 30 Active Duty Family Members Active Duty • Every six months, active duty service members weigh in; they are • tested in their ability to run and do push ups and sit ups • Retirees do not have similar tests

36. Big Picture – “From Strategy to Action” Quadruple Aim Strategic Imperatives Performance Gaps • Strategic Initiative Portfolio • PCMH • Performance Planning • Centers of Excellence • Psychological Health • IMR Programs • … Strategic Initiatives EXECUTION

37. The Defense Health Program – Working Together The Objective: An integrated, efficient funding program that reflects senior leadership priorities 37

38. The Building Blocks for MHS Change and StrategyFour Major Initiatives • REDESIGN • DIRECT CARE • Patient-Centered Medical Home – new model to improve access, drive appropriate utilization • Integrate behavioral health services into Medical Home 38

39. Redesigning Direct CareHow the Medical Home Impacts Performance HEDIS: Preventive Screening NNMC: Colorectal, Cervical, Breast Cancer > 90th percentile Geisinger: 74% quality of preventive care Genesee (MI): 137% mammography (2 yr) CO Medicaid/SCHIP: 74% well-child visits Getting Timely Care Health Partners (MN): 350% in appointment waiting time (5 yr) PCM Continuity Edwards: 10% higher than non-PCMH peer group NNMC: 19% (56%75%) Satisfaction with Healthcare Edwards >8% higher than non-PCMH peer group Group Health(WA): 4% improvement in HEDIS (1 yr) Johns Hopkins: More than twice as likely as usual care patients to rate the quality of their care highly • HEDIS: Adhering to Evidence-Based Guidelines • Edwards, Hill improved A1c and LDL • NNMC: Diabetes, Asthma > 90th percentile • Community Care of NC: 15% diabetes quality; 93% of asthmatics receiving appropriate care • Health Partners (MN): 29% right diabetes care (5 yr) • Geisinger: 34% diabetes management (2yr) • ER Utilization • NNMC: 39% (7042) • Group Health (WA): 29% (1 yr) • Community Care of NC: 16% • Health Partners (MN): 39% (5 yr) • Genesee (MI): 50% (2 yr) • Johns Hopkins: 15% • Per Capita Cost • CO Medicaid/SCHIP: 12% • HealthPartners Medical Group: 8% • Geisinger: 9% • Intermountain: $640 PMPY

40. The Building Blocks for MHS Change and StrategyFour Major Initiatives • RE-ENGINEER • PURCHASED CARE • Implement / streamline new TRICARE contracts (T3) • Design new approach to TRICARE contracts (T4) • REDESIGN • DIRECT CARE • Patient-Centered Medical Home – new model to improve access, drive appropriate utilization • Integrate behavioral health services into Medical Home 40

41. Posing strategic questions: Alternate delivery and finance models Leveraging national health reform Individual choice and financial responsibility Need for global coverage and products for diverse populations Rapid adoption of best practices, knowledge management Scope of benefit, ease of use Ensuring we maintain: Focus on Quadruple Aim Patient and family centered care ethos Robust direct care system for force projection Coordination of care for individual and family readiness Re-engineering Purchased CareThe T-4 Study Group “TRICARE 4th Generation” 41

42. The Building Blocks for MHS Change and StrategyFour Major Initiatives • RE-ENGINEER • PURCHASED CARE • Implement / streamline new TRICARE contracts (T3) • Design new approach to TRICARE contracts (T4) • REDESIGN • DIRECT CARE • Patient-Centered Medical Home – new model to improve access, drive appropriate utilization • Integrate behavioral health services into Medical Home • OPTIMIZE BENEFIT DELIVERY • Introduce more aggressive market-based pricing initiatives • Redirect pharmacy to lower cost venues; reduce ER utilization • Reassess cost balance - gov’t and beneficiaries 42

43. Redirecting prescription drug outlets Financial incentives Minor Changes in Outpatient Costs for Retail / Brand Name Drugs Elimination of Copay for Home Delivery / Generic Drugs Clinician Incentives – Making it easier to order mail order Quality Incentives – Medication compliance goes up with mail order Directing patients to most appropriate source of care Open Access Models Nurse Advice Line Secure Messaging for e-Visits Patient Activation / Engagement Optimize Benefit DeliveryRedirecting Care Persuasion versus Mandate 43

44. In FY 2012 President’s Budget We Proposed: • Better manage our health benefit in a way that delivers a superb benefit while more responsibly managing cost with the beneficiaries, including -- • Promoting healthy lifestyles • Modest adjustments to beneficiary fees • $ 5 / month per family ($2.50/individual) increase in Prime enrollment fees for retirees <65 • For 2013 and beyond, Prime enrollment fees would be indexed to medical inflation growth • Small changes in pharmacy co-pays to encourage use of mail order, generics (reduces some co-pays and increases others; none more than $3) 44

45. 21 March 2011 Washington Post “If congress can’t manage the small fee Increase…it’s can’t pretend to be serious About controlling the debt”

46. The Building Blocks for MHS Change and StrategyFour Major Initiatives • REALIGN ORGANIZATIONAL MODEL • Create a more lean headquarters operation • Look to “shared services” model for additional efficiency Redirect pharmacy to lower cost venues; reduce ER utilization • RE-ENGINEER • PURCHASED CARE • Implement / streamline new TRICARE contracts (T3) • Design new approach to TRICARE contracts (T4) • REDESIGN • DIRECT CARE • Patient-Centered Medical Home – new model to improve access, drive appropriate utilization • Integrate behavioral health services into Medical Home • OPTIMIZE BENEFIT DELIVERY • Introduce more aggressive market-based pricing initiatives • Redirect pharmacy to lower cost venues; reduce ER utilization • Reassess cost balance - gov”t and beneficiaries 46

47. SECDEF Efficiency MEMO – 14 March 2010 TRICARE Management Activity • Reduce 364 Contractors positions • Create MHS Support Activity replacing TMA • Uniformed Services University • TRICARE Health Plans • Health Management Support • Shared Services with other components of the MHS • Reduce 24 Civilian billets

48. The Building Blocks for MHS Change and StrategySupporting Roles • REALIGN ORGANIZATIONAL MODEL • Create a more lean headquarters operation • Look to “shared services” model for additional efficiency Redirect pharmacy to lower cost venues; reduce ER utilization • RE-ENGINEER • PURCHASED CARE • Implement / streamline new TRICARE contracts (T3) • Design new approach to TRICARE contracts (T4) • REDESIGN • DIRECT CARE • Patient-Centered Medical Home – new model to improve access, drive appropriate utilization • Integrate behavioral health services into Medical Home • OPTIMIZE BENEFIT DELIVERY • Introduce more aggressive market-based pricing initiatives • Redirect pharmacy to lower cost venues; reduce ER utilization • Reassess cost balance - gov”t and beneficiaries • BRAC • Close two major medical centers in Washington, DC and San Antonio; renovate other major medical centers and open premier community-based hospital in the US • Open Joint Medical Education & Training Center • Co-locate OSD(HA), TMA, and Service Surgeons General in single location 48

49. BRAC Changed the Landscape for the MHS National Capital Region – Total $2.69B New Ft. Belvoir Community Hospital - Finest in the United States – opens in August Walter Reed National Military Medical Center - World Class Facility - San Antonio – Total $1.18B San Antonio Military Medical Center Fort Sam Houston Clinic 49

50. Welcome to theDefense Health Headquarters Falls Church, Virginia