DEPARTMENT OF DEFENSE APPROPRIATIONS FOR FISCAL YEAR 1993 THURSDAY, APRIL 2, 1992 U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC. The subcommittee met at 9:54 a.m., in room SD-192, Dirksen Senate Office Building, Hon. Daniel K. Inouye (chairman) presiding. Present: Senators Inouye, Johnston, Lautenberg, Stevens, and D'Amato. DEPARTMENT OF DEFENSE OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE FOR HEALTH AFFAIRS STATEMENT OF DR. ENRIQUE MENDEZ, JR., ASSISTANT SECRETARY OF DEFENSE FOR HEALTH AFFAIRS OPENING STATEMENT OF SENATOR INOUYE Senator INOUYE. We meet this morning to consider two of the most important issues we will confront this year. The first is health care for our active duty military personnel, their families, their retirees, and their families. The second is the reduction in military manpower and the effect this reduction will have on the splendid all-volunteer force which has acquitted itself so well in the past. We have to be mindful, as we cause military personnel to leave the force, that they are treated fairly. These are both very serious issues and this subcommittee takes them seriously, as I believe we will prove during this hearing. We are all aware of the several different plans which have been advanced to make deeper cuts in defense spending than those proposed in the fiscal year 1993 budget. I do not necessarily agree with any of these plans, but we would be remiss if we failed to address them, and we shall do so this morning. Our first witness will be Dr. Enrique Mendez, the Assistant Secretary of Defense for Health Affairs. After Dr. Mendez, we will hear from the Honorable Christopher Jehn, the Assistant Secretary of Defense for Force Management and Personnel, to be followed by the service personnel chiefs. We are all very happy to have you here with us this morning, and we look forward to your statement. Before we proceed, may I call upon the vice chairman of the committee? Senator STEVENS. Thank you very much, Mr. Chairman. I do not have an opening statement. Good morning, Dr. Mendez. Senator INOUYE. Always welcome, sir. OVERVIEW PRESENTATION Dr. MENDEZ. Thank you, Mr. Chairman. I am delighted to be here. Distinguished members of the committee, I would like to submit my complete statement for the record, Mr. Chairman, and summarize it for you now. I wanted to thank you for the substantial support and thoughtful guidance that your committee has provided over the years and certainly during the 2 years that I have been on the job, and I appreciate this opportunity to discuss with you the programs and the initiatives that are underway within the military health services system. Our efforts this year have been very interesting efforts and they have also been very intense. They span all avenues of health care pursuit-management, structure, organization, budget, delivery, quality, and systems. In each endeavor, this committee has maintained active interest and they have offered constructive guidance. I believe that our progress is in keeping with the spirit and the intent of your direction. As you know, my Office has now been designated and I have been designated as the single official responsible for the effective execution of the medical missions of the Department. That was placed under my Office this past October, to include the authority, direction, and control of the medical personnel and facilities programs and funding within the Department, so along with this designation now it is up to my Office to prepare, present, and to testify and defend the unified medical program and budget to provide resources for all medical activities within the defense health programs. I have undertaken these new responsibilities in full recognition, Mr. Chairman, of their prominence, given the outlook for continued escalation and health care spending throughout our Nation. Nationally, the estimates are that the cost of both hospital and physician services will increase by about 11 percent in 1992. Growth in the Department of Defense health care costs are programmed at less than 4 percent per year through fiscal year 1997. This increase, although small in comparison to national trends, looms large, certainly in the declining defense budget. The medical portion of the President's fiscal 1993 amended budget for DOD approximates $15.3 billion. Of this amount, $9.5 billion comprises the newly established defense health program appropriation. It funds medical operations and maintenance, including CHAMPUS, to the amount of about $8.9 billion, procurement at $294 million, and medical research and development at $313 million. Military medical personnel represent another $5.5 billion. Medical military construction funding of $240 million in a separate appropriation will continue to be under my direction and control also. The fiscal year 1993 O&M medical program of $8.9 billion represents an increase of about $171 million, which is about 2 percent, sir, of the fiscal year 1992 current estimate. This budget submission reflects a fully funded CHAMPUS program of $3.9 billion, including the newly authorized disabled care benefit and the authorized increase to the dental benefit. Significant to note that the fiscal year 1991 CHAMPUS costs remained within appropriated funds and we are confident that fiscal year 1992 costs will as well. COORDINATED CARE ́ Last year, sir, I reported to you that the environment for coordinated care had been created with encouragement from this committee. I am able to report that on January 8 of this year I transmitted to the service Secretaries the instructions to begin the Department's 3-year phased implementation of the Coordinated Care Program. With the instructions to implement that, I have issued policy guidance to the military departments concerning enrolment, site selection, network development, specialized treatment facilities, education, communications strategies, very importantly, quality management, and health promotion and disease prevention. The 3-year phased implementation will involve some 25 percent of stateside hospital locations in the first year, an additional 50 percent in the second year, and the remaining 25 projected for the third year. To the extent that the program is successful in redirecting existing CHAMPUS workload to existing medical treatment facilities or network providers, funds budgeted for CHAMPUS will be realigned to support that effort. Within the parameters of the Coordinated Care Program, we also are evaluating the applicability and the feasibility of management initiatives for areas where military treatment facilities may close as a result of the Base Realignment and Closure Commission decisions. This committee has expressed special interest in several of these alternative health care delivery programs. Most of these efforts are demonstration projects designed to test various management and delivery concepts and strategies in the CHAMPUS portion of our military health services system. Although the final external evaluation of these projects has not concluded, we have incorporated the most salient features from these demonstrations into the Coordinated Care Program. As we implement coordinated care, we will continue this process. We recognize, sir, that the distinction between our demonstration projects, which basically test certain components of the military health services system and the Coordinated Care Program which encompasses the entire health care delivery system, has not always been clear. The distinction is the single greatest difference, for instance, between CRI and the Coordinated Care Program. The broader perspective of Coordinated Care represents an evolution from component tests to what we believe will systemic reforms. Significant opportunities also exist for improvement, improving management in the remainder of the system where still the vast majority of care is provided to our beneficiaries, so we believe that it is responsible and judicious to capitalize on those management im provements realized in the CHAMPUS program and to progress on to more permanent systemic reforms for the entire military health services system. We believe that the Coordinated Care Program is a vehicle for accomplishing precisely that. In addition to the imperative to encompass virtually all of the military health care services system in that type of reform, I have concerns about reported findings that portray CHAMPUS costs in CRI as to continuing to grow much slower than other CHAMPUS costs. Indeed, the reported figures from fiscal 1987 to fiscal year 1989 show less growth in CRI than in the rest of CHAMPUS. However, when we examine our current budget figures this trend now appears to be different and reversed for the period fiscal year 1990 to fiscal year 1991. When we look at this trend, especially when we relate it to the cost in the military treatment facilities, we feel that it is prudent to be cautious about any conclusions that would attribute significant, sustained future savings to further demonstrations that would be based solely on CHAMPUS reform, and most important characteristics of the Coordinated Care Program is the ability to adapt many different organizational models of care under a management umbrella that promotes consistency and equity of the benefit for our beneficiaries. The military health benefit is a substantial one. It is one that our beneficiaries identify as a top priority. Today, it is a good benefit, a quality of life benefit, and the Department is continuously challenged to ensure that it retains its value. The preservation of this benefit so that we can serve equitably the largest number of our military families with quality health care is a major goal for all of us. As the individual responsible for that effective execution of medical missions, I am equally concerned that the health benefit offered to military families and eligible beneficiaries be of the highest quality, so this year we have developed a comprehensive quality management plan addressing quality issues for care received both within our hospitals and through CHAMPUS. A key component also of the Coordinated Care Program is the scientifically based, quantifiable health promotion and disease prevention program. This program is particularly important, because it holds the promise for individually enhancing our beneficiaries' quality of life. With education and encouragement, each of us can improve our health, and in the long term become less routinely reliant on the health care system. So, sir, in conclusion, military medicine I believe is a dynamic member of the Department of Defense as well as an active leader in the Nation's health care arena. We are attempting to revitalize management and delivery and this pulse of activity drives us, each one of us, to accomplish that single purpose that I spoke to; namely, quality patient care. I believe that ours is a rather ambitious undertaking, as we grapple with the fine details of pulling together the defense health program, as we forge ahead with the composite health system, as we initiate and refine quality assurance and utilization management programs for both CHAMPUS and the direct care system, as we move out with health promotion initiatives, maintain our state of medical readiness, explore sharing potentials with other Federal health agencies, promulgate physician payment reforms, and launch a Coordinated Care Program to bring about systemic changes in military medicine and its delivery for the benefit of all of our patients. So as we progress with these activities, I look forward to future deliberations with this committee, and I certainly hope, sir, that you will continue your strong support for military medicine. Thank you, Mr. Chairman. [The statement follows:] STATEMENT OF DR. ENRIQUE MENDEZ, JR. INTRODUCTION Mr. Chairman, Distinguished Members of the Committee, I am pleased to be here this afternoon, and I thank you for the opportunity to review with you the score of initiatives and programs under way within the Military Health Services System. For years, the substantial support and thoughtful guidance of this committee have been dominant factors in shaping our delivery systems as well as the health benefits we are able to provide. Throughout the past year, this committee has continued to demonstrate its keen interest in military medicine. By encouraging wider roles for all health care professionals and supporting the Department's efforts to reform the Military Health Services System, you displayed special interest in caring for our beneficiaries. At the same time, your directions for medical budget consolidation, expansion of managed care initiatives and sharing among federal agencies signal concern for the effective use of health care dollars. Our efforts this year span all avenues of health care pursuit. . . management, structure, organization, budget, delivery, quality, and systems. In each endeavor, this committee has maintained active interest and offered constructive guidance. Í believe our progress is in keeping with the spirit and intent of your direction. MANAGEMENT OF MILITARY MEDICINE Attentive to the Committee's concerns and with its blessing, the Department has implemented significant measures to strengthen the management of military medicine. At the direction of the Deputy Secretary of Defense, responsibility for the effective execution of the medical missions of the Department now rests with a single official. As the Assistant Secretary of Defense for Health Affairs, I am that official. Medical personnel, facilities, programs, funding and other resources within the Department are subject to my authority, direction and control. Exercise of those new authorities is through the issuance of instructions to the Secretaries of the Military Departments and the Chairman of the Joint Chiefs of Staff. Additionally, as the responsible official, I prepare, present, justify and defend a unified medical program and budget to provide resources for all medical activities within the Defense Health Program. These responsibilities I have undertaken in full recognition of their prominence given the outlook for continued escalation in health care spending throughout our nation. The Department of Commerce estimates that both hospital and physician services will increase 11 percent, and total health care spending will consume 14 percent of the GNP in 1992. Growth in the Department of Defense health care costs presently is programmed at 3.87 percent per year through fiscal year 1997. This increase, small in comparison to national trends, looms large in a declining Defense budget. A Defense Medical Advisory Council has been established to advise me in the execution of the Department's medical missions. This council consists of a Presidential appointee from each military department and a general or flag officer from each of the military services. Also, a general or flag representative of the Chairman of the Joint Chiefs of Staff and the President of the Uniformed Services University of the Health Sciences round out the membership. As Assistant Secretary, I chair the council. This council of senior leadership from the military departments is essential for both communicating health policy to the services and apprising me of their operations and programs. Finally, I was asked to implement a health care program that ensures coordination of the provision of care in our own medical facilities with that purchased |