The percentage increase in annual expenditures for the total CHAMPUS program, including CRI for this last year, was less than the CRI portion of the CHAMPUS. That was not so as we looked at this in fiscal year 1990 and I have no quarrel with the presentation from RAND. That is a reality which I must accept.

The other is that this one-time reduction occurs with the application of managed care, we also expect a similar one-time savings to take place with coordinated care.

Another thing I already alluded to, is that there are significant differences in the consistency of the benefits with the rest of the system. I get two types of input. One speaks to those people who have a lesser deductible or lesser co-pay; the other speaks to people who do not have a lesser deductible, or lesser co-pay in the system. I understand both queries very well.

Finally, the opportunity for enrollment for persons over 65 is important, and I have had significant input about that opportunity. People over age 65 want to be able to enroll and, therefore, to be able to use health care finders, the mechanism, to receive care in the MTF or quality network provides, even if Medicare is the reimbursing agency.

So the changes in the RFP were to follow certain precepts. That is, utilization of primary care managers, inclusion of our Medicare eligibles, establishing a specialized treatment facility system, and establishing direct responsibilities for commanders in terms of their relationships with contractors.

Moreover, it is essential to establish standards, a common base, for utilization management and quality assurance, to be applied both inside and outside the military treatment facility. And finally, to bring about that equity of benefits that I just mentioned. I realize that is a long answer to your question but I felt that the

Mr. DICKS. I am not sure the question has been answered yet. Dr. MENDEZ. Your question was why was it that you caused a change in the RFP. Those were the basic reasons why I felt that a change in the RFP was logical at this time.

Mr. DICKS. Go through the ingredients in the change in the RFP and explain why you think each was required.

Dr. MENDEZ. The majority of the RFP has not changed.

Mr. DICKS. You have dramatically increased cost shares when beneficiaries enroll-they are not going to like that. There is no indication if you look at the RAND study that that is required. Are you trying to achieve further savings with this RFP?

Dr. MENDEZ. I am trying to achieve equity first for the whole system and trying to be real as far as budgetary realities are concerned; yes, sir.

Mr. DICKS. Is it your sense of equity that because some people had to pay $5.00 when they came in, so because they were getting a good deal we are going to go back to the old system and punish them all equitably?

Dr. MENDEZ. No. If we were to do the reverse

Mr. DICKS. Cover all with $5.00?

Dr. MENDEZ. Cover everyone at $5.00 now. I have had that computation done to see what the possibility is of going to $5.00 for the whole system and not having any deductible. The best input I can

get in terms of cost, if we were to do that, is around $500 million. Now, I have no quarrel

Mr. DICKS. But that is if you use the old CHAMPUS system. Take the reverse, do the right thing, you would then expand CRI to everyone, and then we might get the costs under control, and have a much more equitable system that the people like.

Dr. MENDEZ. At the same time I am presented with numbers that tell me that that is not happening.

Mr. DICKS. Can you give us those numbers? We haven't seen those numbers. Here it is. We have 8 lines here and no explanation. I don't think that is an answer. What is the military “lockout" if beneficiaries do not enroll?

Dr. MENDEZ. All right, sir. What that basically says is that in a system of managed care an individual makes a choice to come into that system of managed care and that is called enrollment or a choice not to come into the system. Once the choice is made, is if you choose not to come into the program, then you do not get your care in the program's facilities-in our case it would be in the military treatment facilities. We have allowed two exceptions. These exceptions are for prescriptions and for emergency care.

So after the choice is made of enrollment or not enrollment, lockout would mean that the individual who chooses not to enroll would continue care through CHAMPUS and would not receive care at the military treatment facility, except for those two things. I believe that is the way the word lockout is used.

PREFERRED PROVIDER OPTION

Mr. Dicks. Why have you nearly totally removed the preferred provider option?

Dr. MENDEZ. I believe for two reasons. The major reason is the continuity of enrollment, for the commander to know who is going to come for care. Right now our commanders are unable to say that out of the universe of people who are eligible beneficiaries what their demand is so that they can plan for that demand. Once the individual is enrolled, the commander is able to plan for that demand, and those are the major reasons for it.

Mr. Dicks. At Madigan, as I understand it, hardly any retirees can go there, that you have almost all active duty people and dependents that use that. So they are forced to go to other DOD facilities because they can't get into the hospital any more.

Have you received significant complaints from the base commanders about preferred providers?

Dr. MENDEZ. I have not from the base commanders; no, sir. And certainly not from the patients. I have no quarrel with the statement that says the patients enjoy a lesser co-pay than they have had before. I have no problem understanding that.

Mr. DICKS. I will try another way, to see if we can get a direct answer, not that your answer has been indirect, but it has been long and maybe a little difficult for us, the lay people, to understand.

Again, what is your motivation for so drastically changing the direction of DOD health care when this is an untested design? You

have a tested design. We have something out there that works, but then, you take a dramatically different turn.

That is what we are having a hard time understanding. We are of the old school that if it ain't broke, don't fix it. This is not very popular with our constituents.

What are you trying to achieve with an untested situation? You shouldn't have put out a RFP-this Committee is very upset with you for doing that without doing a draft first. We go through a prebidders conference, and inform everyone. We should not just go out and drop a bombshell on our people, especially when it costs $3.5 billion. So, I will ask you again, why is it that we are changing direction here, when we have a new model that we have tested and its works, now we are going another direction with an untested model?

Dr. MENDEZ. I don't believe that the design is untested.

Mr. DICKS. Where has it been tested?

Dr. MENDEZ. It is a design that is the product of the experiences of CRI, the present MTF system and other lessons that have been learned by our civilian colleagues in managed care. In terms of change, we looked at the CRI area and the rest of the universe. The differential included a $150 individual deductible and $300 for a family-those amounts reflect a recent increase-and cost sharing. We are putting the deductibles no higher than that.

I realize that to the individuals in the two States that are affected that that is a significant change from the way it has been before. We applied basically all the lessons of the demonstration into a single program and must attain the benefit consistency that I spoke about a moment ago with you.

REQUEST FOR PROPOSAL (RFP)

Mr. DICKS. Let's talk about the RFP. As I understand it, the Committee asked that this be held up until there was a chance to discuss it, and that was not done.

[CLERK'S NOTE.-The Committee asked the Department not to release any RFP for the CRI recompete until the Comptroller General interpreted various congressioal direction on this issue.]

Mr. MURTHA. As a matter of fact, I asked by letter to Secretary Atwood on January 7, to let us see this draft request for proposal. He didn't even have the courtesy of showing that draft proposal to this Committee. You rushed in and put the draft out on the street for a $3.5 billion contract. Maybe we wouldn't have changed it, but certainly we may have had some recommendations to change that draft proposal.

Dr. MENDEZ. If I may, by all means-I certainly want to follow. the direction of the Congress. The reality to us was that we had initially, in that matter, two conflicting directions.

The conflict occurred prior to the issuance of the RFP in terms of what type of procurement was going to come to pass. We released the RFP at the recommendation of the General Counsel and out of concern for timing.

What do I mean by timing? My concern was that there would be no period of time uncovered after expiration of the current contract; that there be no break in service to the beneficiary. Issuing

the RFP did not restrict the department to a course of action. Starts could be as early as August 1993 or as late as February of 1994

The reality loomed that if we waited very long before issuing an RFP then we would have difficulty continuing a program of care for our patients in that area.

Now, my understanding is that the requirements of the Federal Acquisition Regulations were followed and that the pay proposal on the street at the present time is a legitimate one. Did we do a draft RFP? We did not.

Mr. DICKS. Why didn't you?

Dr. MENDEZ. First, a draft RFP normally is issued with some thing totally new. This is not going to be new. It is similar, with two or three differences, to the prior RFP in terms of content. Second, the concern for that hiatus in patient care I mentioned demanded a RFP go out.

Mr. MURTHA. Doctor, don't you think that if 95 percent of the beneficiaries are satisfied with the program, that they deserve some consideration before you put an RFP onto the streets. I understand the cost constraints. Have you ever had a problem with this Committee in making a recommendation that we didn't fund the needs of the military?

Dr. MENDEZ. No, sir.

Mr. MURTHA. Is there someone telling you that you have to reduce costs or service?

Dr. MENDEZ. I realize, I am not the whole Department of Defense, everyone has a budget to that effect.

Do I follow the budget? Yes.

Mr. MURTHA. You are saying this is cost driven?

Dr. MENDEZ. No, sir. I am not saying that this is cost driven. I am saying that cost is a parameter of evaluation.

Mr. DICKS. What is your legal basis for your use of the term “deductibles" or what is termed as bad CHAMPUS?

Dr. MENDEZ. In the 1991 and 1992 appropriations language there is, indeed, the authorization to be able to do what you termed a moment ago as a lockout, or to be able to increase the deductibles. Mr. DICKS. What do you anticipate the beneficiary reaction in California and Hawaii to be?

Dr. MENDEZ. That has already been shared with me, particularly by members of the military coalition. They expect that to be negative.

Mr. DICKS. Then, why are we doing this?

Dr. MENDEZ. Sir, for the same reasons that I spoke to a moment ago. In terms of doing the responsible thing for the whole system, to cause consistency in terms of the benefit. And, to attain savings which at the present time with CRI appears to be a true question, particularly in the latter years.

ANALYSIS OF IMPACT ON CRI

Mr. DICKS. RAND recently reported that CRI costs grew two percent while the remainder of the country's costs grew at 16 percent. Have you done an actuarial analysis to determine the impact on the CRI performance of your proposed changes?

Dr. MENDEZ. I have, as I have stated, no quarrel with RAND's input. Why? Because it is between that 1987-1989 time frame. The figures that I have are expenditures during the fiscal year by area. These figures tell me that in the last year that was looked at, the experience was not the same as reported by RAND initially.

Mr. DICKS. So, you haven't done an actuarial analysis?

Dr. MENDEZ. Actual experience analysis is done always in our office. These are basic

Mr. DICKS. Do you know what the impact of changes are going to be on the program?

Mr. MURTHA. To save money is one thing, that is a major consideration isn't it?

Dr. MENDEZ. It is a consideration; yes, sir.

Mr. MURTHA. Is it true that 100 percent of the hospital commanders in California and Hawaii asked to keep CRI? 100 percent? Dr. MENDEZ. They have not asked me to keep CRI. It is my understanding and I have met with them, that the hospital commanders are satisfied with CRI, yes, sir.

Mr. MURTHA. Mr. Hefner.

FORT BRAGG MEDICAL CENTER

Mr. HEFNER. Thank you, Mr. Chairman. Doctor, it is good to have you and the other gentlemen here. I will be very brief. I think we can get to my problems without any long answers.

Last year the Army wanted to begin constructing a new medical center at Fort Bragg. The Congress required DOD to examine the long-term requirements for graduate medical education prior to building any new medical centers, given the reduced size of the force, and I think that was a wise thing to do. I believe that the study was due in early February. Can you tell the Committee what your findings were and will the Bragg facility be delayed as a result of this study?

Dr. MENDEZ. The GME study is due to me at the end of this month. I have appointed a group of flag officers to look at graduate medical education throughout the system, particularly at this time of force changes, to see how that should eventually lay out, and the relationship between the services in terms of graduate medical education. It is a complex issue and this is the reason why I appointed that group.

I expect action by the end of this month. In terms of the hospital, I would like to ask my colleagues to expand on that subject for you because Dr. Ledford has been quite involved.

Mr. HEFNER. Maybe he could open another hospital before he leaves.

General LEDFORD. Could I lead off by telling you I am about to wrap up 34 years of service and it has been service, sir. Looking on it, I just wrote down the things that I believe that I will look to with the greatest pride on my last four years as Surgeon General. This Committee supported every one of them: commissioning physician assistance, the new Walter Reed Institute of Research that we are going to make a national treasure, the funding of I think the best AIDS program in the Nation, funding of an AIDS