It also had to do with specifically what the relationship was between the Medicare payment and the payment by CHAMPUS. I think that is within the clarification, and I can add that to the material that is coming to you.

[The information follows:]

There were several differences between the Appropriations and Authorization Acts making CHAMPUS secondary payer to Medicare for those beneficiaries under the age of 65 who qualified for Medicare by reason of disability.

The Appropriations Act specified that CHAMPUS secondary payer coverage would not be available prior to October 1, 1991; that only retirees and their dependents were covered; and, that the secondary payer method would be that commonly used. The Authorization Act had an effective date of December 5, 1991; included in the eligibles the survivors of deceased active duty and deceased retired members, as well as otherwise qualified former spouses; and, specified a unique secondary payer method for CHAMPUS.

The differences were resolved by the Department's Office of General Counsel in a way that retained the October 1, 1991 effective date for retirees and their dependents, made the December 5, 1991, date effective for survivors and qualifying former spouses; and, made the new secondary payer process applicable back to October 1, 1991, to avoid implementing two different secondary payer methods in about a twomonth period.

Briefly, the new secondary payer method guarantees that the new group of CHAMPUS eligibles will never have liabilities for covered services that are greater than what their cost shares would have been under CHAMPUS coverage alone. The major difference in the new method is that the usual secondary payer process under CHAMPUS often results in the beneficiary's benefit costs being paid in full. The only predictable time this could happen under the new method is if the beneficiary cost share amounts reach the catastrophic cap level of $10,000 in a year.

The new method approximates one called "benefits less benefits" by health insurers who, in specific contracts when the patient has dual coverage, pay no more than the higher of the two coverages.

Following the Authorization Act requirement, CHAMPUS claims processors will determine the beneficiaries' benefit out-of-pocket costs under Medicare as the primary payer. They then will calculate what the beneficiaries' out-of-pocket costs for the benefits would have been had CHAMPUS been the only payer. If the beneficiaries' liabilities under Medicare are greater than they would have been under CHAMPUS, the CHAMPUS payment will be the difference between the two. If the liabilities under CHAMPUS would have been the same as or less than those under Medicare, no additional payment will occur.

This method applies only to services that are benefits under both Medicare and CHAMPUS. If it is a benefit only under CHAMPUS, primarily prescription drugs, CHAMPUS payment will be the same as if no other coverage existed.

Dr. MENDEZ. I understand the two intrinsic differences were that one portion of the provision covered retirees and retirees' dependents and the other covered that same group of people, but it also covered dependents of deceased, both of active and retired. Those matters took time for the legal people to resolve.

Mr. YOUNG. Thank you very much. Knowing you as well as I do, I know you will do all you can to help us as we look for ways to help Andy and Terry Cox and other Americans with problems similar to theirs.

Dr. MENDEZ. Thank you. I appreciate your good words about the registry and my colleague, Dr. Hagen, appreciates them, also. Mr. YOUNG. We appreciate your help.

Mr. MURTHA. Let me ask that you look into this legal action. Here is a woman who has gone bankrupt, who is living with her mother, who has a heart condition, and the Defense Department is suing her in order to recover a couple hundred thousand dollars that it paid to her health care providers. That doesn't make any sense to me.

I don't know what the status is as far as the courts go, but I would hope that somebody besides a comptroller, besides a bureaucratic administrative person that never gets out of the Pentagon or wherever your office is, would look at this thing and see if we can resolve it. I can hardly contain myself when I think of the poor judgments of someone following a procedure like this.

Congressman Joe McDade, Mr. Young, and I even thought about introducing a private bill to take care of this woman. That shouldn't be necessary. So I would hope you would look into why this woman is being sued to recover money that she supposedly was asked to pay and was caused by some person that made a mistake up here. We forgave $79 million to the people who served in Operation Desert Storm because the Defense Department made a mistake in individual cases and overpaid them. We said forgive the debt up to a certain amount of money. We felt that was the right thing to do.

It seems to me someone in your department can make a decision like this based on the facts of the case. It is going to cost more money to sue they can't possibly recover any money.

Dr. MENDEZ. Why don't I have this doctor look into it and have this doctor report to you specifically? I will look into it myself, and see what the whole significance of it is, including if there is an opportunity for relief. I will be happy to do that.

Mr. YOUNG. Mr. Chairman, would you yield-on the question of forgiving debt, this Government of ours has been so generous over the years. We have forgiven hundreds of millions-billions of dollars in foreign loans due to the United States. We just forgave them and wrote them off. This was cash that we put out and never got back from foreign interests.

Mr. MURTHA. Mr. Dicks.

CHAMPUS REFORM INITIATIVE

Mr. DICKS. Thank you, Mr. Chairman. Dr. Mendez, it is good to see you and good to see all the Surgeons General, particularly General Ledford, who joined us in Takoma for the opening of Madigan Army Medical Center. It was a great day. The Chairman notes that General Ledford is retiring in June after serving four years as the Army Surgeon General and after almost 34 years on active duty. As you said, you were glad you finally got to open a hospital. You opened the right one, by the way. We want to compliment you for your distinguished service to the country. We know that you will continue to be available when we need help and we appreciate all your good service.

Dr. Mendez, this Committee has received praise about the CHAMPUS Reform Initiative demonstration project in beneficiaries and their representative associations, the RAND study, the GAO study and our own investigative staff study. With this in mind you have issued a RFP, which significantly alters the most effective health care design you have in the Department of Defense.

Now, this Committee is having a hard time understanding why that was necessary, and if it was necessary. We would like you to

give us verbal side-by-side snapshots of the CRI flaws or weaknesses, and the proposed RFP changes which address those weaknesses. First, we would like you to deal with the following issues: dramatically increased cost share when beneficiaries enroll. This program apparently was very effective, RAND says costs have been kept down to about a two percent increase per year when everything else is increasing from 12 to 16 percent a year. Why do we want to have this dramatic increased cost share, which is going to cause a furor in the community? Why are we deciding to do this? Dr. MENDEZ. Begging your indulgence, let me answer your question first with a bit of perspective because I think you are seeking the logic.

Mr. Dicks. That is a good idea.

Dr. MENDEZ. I cannot look at the CRI or any demonstration project, for that matter, in pure isolation. All demonstration projects are part of a total concert of health care and it includes two basic delivery systems, the direct care system and CHAMPUS. So we have, first of all, two health care delivery systems that interdigitate in terms of the care of the patient.

Whenever I look at the parts of those two systems that come together into the military health services system I must keep in mind certain realities. I will share those with you first and then answer your question.

We have budgetary realities in which at the present time from a growth that was normally about 8 percent a year between 1985 and 1991, I have a projection of an average of about 4 percent in the 1992-1997 time frame for the total system.

CHAMPUS is about 26 percent of the total program, Mr. Dicks. CRI, is a part of that 26 percent. The study that was commissioned with RAND that you mentioned has not been finalized as yet.

I have data from RAND that is now a few years old, I think it goes to 1989—and I have data that is newer, not from RAND, in order to be able to look at the matter of cost. There is another thing that is very important to our people and that is consistency, consistency and equity of the total benefit throughout the country. It has been of importance to this committee-this committee has made that statement-and of importance to the department.

So we did consider it as a principle at each step of the design the application of coordinated care. A significant number of initiatives have also taken place since 1987, which was the beginning of the present CRI model.

Why do I bring that up? Because there are changes occurring in tandem that have an effect on the total system. I must consider those other effects when I see what is happening in any of the demonstration projects. The current figures that I have, not from RAND, from our own office, as to the expenditure for CHAMPUS tell me that the third and fourth year are different than the years that preceded them.

Is that an unusual phenomenon in managed care? No. You implement things for which you get a savings, and then the programs come to a steady state of operation. So I have to keep that in mind while looking at the future as we implement other forms of health care delivery in the system.

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