tion by staying in close contact with the associations and getting feedback as to how well we are doing. In addition, as part of that survey, we do survey the MTF commanders as to how well they are doing. It is indicated that somewhere in the neighborhood of 96 percent of the MTF commanders from California and Hawaii are satisfied with the program and the services it provides.

As you referenced in your opening comments, the Department of Defense secured an independent evaluation of the program through the RAND Corporation, and over the two-year period studied, it was a 2 percent increase in California and Hawaii and health care costs were 16 percent in the rest of the nation.

We have seen some added benefits that probably no one contemplated at the time of the 1988 contract. At that time no one guessed Operation Desert Storm/Desert Shield would occur. As a result of the program and the fact that the system was in place, I believe we supported the MTF commanders' needs during deployment, had an opportunity to backfill when necessary and actively sought the civilian health care system in order to ensure that care would be readily available in the event we needed to move patients from the MTF and into the civilian sector. We also find that there is an added value now as we sit and face base closure in California and Hawaii, certainly in California where it has a dramatic effect, and we sit at the table with the MTF commanders in strategic planning to calculate how we can accommodate the beneficiaries' need in the civilian sector.

With respect to budget, we had an opportunity to look recently at how well we have done with respect to the best and final offer that was proposed in 1988, and recently found that we were within 3.1 percent of what was originally calculated as our budget expense for this program at this current period. Excluding DOD directed change orders which are still in the course of negotiation, we felt we were pretty close to being on budget in terms of original calculations.

So we think we have reduced costs, improved access and we have a highly satisfied population that we serve, and think the program has been tremendously successful.

[The statement of Mr. Tough follows:]

STATEMENT OF

MR. STEVE TOUGH

PRESIDENT

FOUNDATION HEALTH FEDERAL SERVICES

MARCH 12, 1992

MEDICAL OVERVIEW HEARING

BEFORE THE

HOUSE APPROPRIATIONS COMMITTEE

SUBCOMMITTEE ON DEFENSE

102ND CONGRESS, SECOND SESSION

Not for Publication

Until Released by the Subcommittee

Mr. Chairman, Members of the Committee:

I would like to begin by thanking you, Mr. Chairman, and all the Members of your Committee, for extending this opportunity to me to testify before this distinguished Committee. It is with a great deal of pleasure that I report to you that the CHAMPUS Reform Initiative (CRI) is providing quality health care to our military family members in California and Hawaii at substantially less cost to the taxpayer. I have a comprehensive CRI briefing that I would like to provide for the record.

As you will recall, CRI was launched in 1988 as a demonstration project in order to determine if a system of managed care, operated by experts in the field, could remedy an ailing CHAMPUS program faced with spiraling costs on the one hand, and growing beneficiary dissatisfaction on the other. The intent was to incorporate as many of the civilian managed care principles into the military medical environment as possible and to determine the affects of these principles. I am pleased to report that we have succeeded in curtailing the

significant rise in health care costs and have dramatically improved beneficiary satisfaction and access to care.

In the RAND evaluation of the CRI, RAND concluded that the

CHAMPUS costs in the CRI states of California and Hawaii increased by 2 percent while health care costs in the other 48 states during the same period increased by 16 percent. This translates into an approximate $620 million cost avoidance over the life of the five-year life of the CRI contract. More importantly, CRI is very popular with the military family members and retired soldiers, sailors, marines and airman we serve. This popularity is attested to by the number of people who have currently enrolled in the program, along with periodic survey results and feedback we have received from the 24 military associations. Through our periodic beneficiary survey assessments, we have determined that beneficiaries have received improved access to quality of care while spending, on an average, 51 percent less out-of-pocket than under current standard CHAMPUS benefits.

It should also be noted that the government developed CRI as an "at risk" venture. Foundation Health has a firm, fixed price contract with the Department of Defense, and is "at risk" for the cost of CHAMPUS in the two states. From a budgetary standpoint, the CRI program is within 3 percent of the 1992 projections established in 1988. Much of the 3 percent can be attributed to program modifications directed by DOD. Given the RAND results, the at risk nature of the contract, and the consistency with budget

estimates it is clear CRI has achieved its financial targets and has insured

significant savings to both the government and the beneficiaries.

As you know, CRI provides two alternatives to the conventional CHAMPUS program. Based on a network of selected civilian providers, an enrollment option similar to a health maintenance organization (HMO) is provided in addition to an optional preferred provider organization (PPO) benefit structure. Participation is voluntary. Beneficiaries are encouraged to obtain care in an available military treatment facility, but may use their conventional CHAMPUS benefits. Enrollees are encouraged to enroll in the HMO program by virtue of the positive incentives of improved benefits and reduced out-of-pocket expenses. Simultaneously, beneficiaries selecting either the PPO or HMO managed care options further improve control over health

care costs.

To support the Department's desire to improve access to military hospitals, we have also shown that CRI can increase the capability of military treatment facilities by securing contractual relationships, which may include people and equipment, to enhance service capability at the MTF. Currently,

the assets we have placed in military hospitals and clinics have increased MTF visits by over 40,000 monthly.