garding the people impacted not only by base closure but in the general context around the country, military folks and dependents who are impacted in that way.

Mr. Secretary, I appreciate the job that you have. It is very difficult particularly in these budgetary times. I appreciate the department's efforts to finally get the military health program in the New Orleans area going. We were trying some six or seven years to get a demonstration project there. We are delighted that it is going, but it has taken-it did take about six years to get implemented, and at various points along the way I became fairly convinced that there was an attitude at the time that it is not our program, it is not our idea and we are not too enthusiastic about it, so we need not hurry about it.

When the Department decided to go ahead with one program, they let out the bids, but they put so many restrictions on it that it couldn't fly, and they got no bidders.

So with a little persistence we came back and did it again. We have a plan down there and it seems to be working. It has only been going three or four months so it is too early to tell if it is reaping the savings projected by RAND and GAO in California and Hawaii, but we hope that it does.

I can tell you that many people jumped onto the program, in three months, 4,000 people have signed up. I can tell you the people of our area are very enthusiastic about it, and the positive incentives of lower co-payments, no deductibles, voluntary enrollment, little paperwork-those are real incentives. From what I understand from talking to all the people that projected how many people would sign up, they would have been surprised if we got 1,500 people to sign up, and we have 4,000 people signed up already.

So it is doing very well, and if it is saving money, it seems to me it ought to be left alone. I am concerned about this new RFP in California. It doesn't affect us yet. But, it may well down the line since options have to be renewed on the New Orleans project. I am concerned about the precedents in California because I have to wonder exactly what is being accomplished. Is the intent to get in there and change really budget-driven as the chairman has indicated, is it the old resistance, that it is not our plan so we don't want it to work in the first place, or is it an attitude that, frankly I have seen in the 15 years that I have been in government that says, if we are going to save money here we might not have that money to spend somewhere else so we better grab hold of the savings and spend it quickly somewhere else so therefore our budget will be maintained?

I will tell you, we are on the Appropriations Committee, we see it. The average agency in the bureaucracy, not necessarily in DOD or any particular place I am not criticizing anybody-the attitude is if we are getting toward the end of the year, and we are about to bring in some savings to the taxpayer, we better spend it real fast or otherwise we won't get that much money next year to spend. I just wonder to what extent that attitude has crept into this whole program. The CRI is a good program, saving taxpayers money, the constituents and beneficiaries like it, but we are not spending all the money that was appropriated, and if we don't do something to

adjust quickly, Congress will take that money away from us and spend it somewhere else.

That is an attitude. I don't know if it exists. I will ask for your comments. But it is an attitude that flies in the face of the interest of the taxpayer. It shouldn't exist. I guess the proof of the pudding will be in those figures you cited today. If there is no savings in CRI that is one thing, and that will be borne out. But if there is savings, if CRI actually provides greater benefit for less money, then we better reevaluate where we are going.

Dr. MENDEZ. I have, sir, first of all, no objection to providing more benefits for less money. I would like the same thing as you would like. As I have said before, it is a system that I grew up with, and I want to preserve it. I am a military retiree myself. Three of my four children receive their health care in the Military Health Services System and five out of my six grandchildren. I get input from them the same as I do from the rest of the folks, many of whom have been my patients. I want to have that benefit contin

ue.

In terms of New Orleans now, I, like you, have not, at this point the ability to evaluate the savings because it has been in operation only a short period of time. My statistics are the same as yours. Out of the 23,000 beneficiaries, my understanding is that 4,000 have signed up for the program.

Concerning ownership of CRI, it is not a matter of disowning the program because CRI was started by DOD. I have no problem with that, the same as I said that I had no problem with the figures as presented.

The reality I am given now is a different reality, in terms of savings over time. I have had figures very recently presented to me. I sent them to the staff when I received them. I asked my staff to evaluate them further. I have asked my staff specifically, because of the significance and because of the importance of this, to tease these numbers apart even more.

In terms of attitude, I understand what you are saying. Do I possess that attitude? I do not possess it. Do I feel it directly from my staff? I do not. That is the best I can tell you about that. I will make our numbers available to the GAO because I think that that should happen. They have looked at this before and I think that that is a proper thing to do.

Mr. LIVINGSTON. Thank you, doctor.

With respect to the New Orleans project, last year when you testified you said New Orleans would be the department's first opportunity to implement coordinated care principals. Since the project uses positive incentives to facilitate patient management, it is not clear what coordinated care principles have been implemented. Which ones have been implemented?

Dr. MENDEZ. I think that the majority, practically all of them. Coordinated care is an umbrella name for a whole series of actions. Those actions include several modes of managed care, of which CRI is one. There can be other modes of managed care. Fiscal intermediaries would be another mode. One that the services have tried is the Catchment Area Management (CAM) concept. Are all those concepts acceptable within the umbrella coverage of coordinated care? The answer is yes.

Significantly, coordinated care includes something else. It includes the efficiency and productivity of military treatment facilities run by the military and the relationships between those MTFs and civilian providers as extensions of the MTFs into a series of networks.

So I think that the idea that CRI and coordinated care cannot come together, or the idea that that is an abhorrent thought, or that they are separate, or that we must put CAM in, et cetera, that is not in my thinking.

Mr. LIVINGSTON. So it is a broad concept and it includes the use of positive incentives?

Dr. MENDEZ. Yes.

Mr. LIVINGSTON. Also if you change those positive incentives to negative incentives, it can include that too. Do you plan to modify the CRI contract in New Orleans to force the use of negative incentives like higher co-payments, deductibles and non-voluntary entitlements?

Dr. MENDEZ. Here equity throughout the system comes into play. Allow me first to get the same data that you would like to have so we can make a value judgment. I can't make that value judgment yet.

CRI VERSUS CHAMPUS

Mr. DICKS. What is your definition of equity? I am a lawyer. Equity means fairness. What is equitable about having another system that works with a $5.00 co-payment and people like itthen completely change the program and then we have to charge them more? How is that equity? There is no justice there.

Dr. MENDEZ. Nothing like that. I also want to advantage people as much as possible. The thought is for the individual who does not receive it, the one who is not within a demonstration project, and the majority are not in a demonstration project. Will that fellow then say that the continuity of an advantage past a demonstration project becomes arbitrary if she/he does not get it?

Mr. DICKS. Did anybody from any other area complain about this?

Dr. MENDEZ. The issue is not the demonstration, I don't believe. The demonstration is a test. The test achieves a result. Assuming no question had come into the result, the reality is how do you deal with the whole system in terms of the consistency of that benefit for everybody.

Mr. MURTHA. If the gentleman would yield?

Mr. LIVINGSTON. Yes. I have a couple more questions, but go ahead.

Mr. MURTHA. We have been known to put money in the budget in areas where people didn't ask. If you tell us for $500 million you can take care of all people under CRI, it is a better system, and in the end it is going to save money, be assured we will consider that very seriously. We don't hesitate to fund important projects. We want to give the best possible care to people. If OSD is saying to you that you can't give good care because we lack the money, let us make the decision about whether we can find money someplace else to fund this program. That is what we offer you.

So I wish you wouldn't keep saying that because it is inequitable we are going to have to change it, because the other people don't have as good a system, because we would like to see the figures of what it would cost in addition to the expenditures.

Mr. DICKS. Are you saying if you took the CRI program and expanded it across the country to everybody it will cost a half a billion dollars more?

Dr. MENDEZ. No. I am saying that if you deleted the co-payment, that if you decreased the visit to $5.00 a head for everyone in the system, that that would cost about half a billion dollars. In other words

Mr. DICKS. Would you also be imposing all of the managed care principals so that they would be reducing the cost of certain services that are given today and are reimbursed under CHAMPUS without the benefit of a system approach?

Dr. MENDEZ. No, sir. The reason coordinated care

Mr. Dicks. You can't say it is going to cost you more to do this, but we are not going to look at the benefits of the system because on this side it will reduce costs.

Dr. MENDEZ. I believe managed care will reduce costs, but I do not believe that those costs will give you a straight line or that if you reduce today you will necessarily reduce next year and years following in the same type of way. There are certain things that you fix and you get a cost reduction, out of that your base line for the curve changes, and then you continue with that new base line. What I am saying is that we can accommodate CRI, within the system of coordinated care, number one. Number two, that as of late, namely not in the first two years but as of late, a question has come up in terms of CRI savings. Since that has come up then the assurance that replicating it would cause savings in a continuum, has a question behind it. And, I would like to see that question clarified.

Mr. LIVINGSTON. I appreciate your comment, Doctor, about not being able to tell where we are on the New Orleans plan because it has only been going three months. How long has the CaliforniaHawaii plan been going?

Dr. MENDEZ. I believe it began in 1988. I was not here.

Mr. LIVINGSTON. And it was initially let for what, a five-year plan?

Dr. MENDEZ. Yes, sir.

Mr. LIVINGSTON. This is 1992, so it has only been four years, actually three that have gone by. Doesn't it seem sensible to let the thing go through its original term until you get more accurate figures and find out where you are before you let another RFP out and start over again?

Dr. MENDEZ. We will get further data this year. The projections for this year are not dissimilar to those of last year, but they are projections. We will have the experience data in terms of savings, when the Rand folks complete the study. I am just as eagerly awaiting that as I am sure you are. So I see the logic of that.

[CLERK'S NOTE.-Questions submitted by Mr. Livingston and the answers thereto follow:]

BASE CLOSURES

Question. Your testimony refers to a joint service task force to analyze the impact base closures will have on the health care of beneficiaries in affected communities. Your testimony seems to refer to a limited charter for this task force in terms of what areas impacted by base closures it will study. Is this task force going to look at all areas impacted by base closures? If not, why not?

Answer. The task force is analyzing all sites included in the current Base Realignment and Closure (BRAC) I and BRAC II lists. Question. What specific areas is the task force currently studying?

Answer. The task force is studying all BRAC I and BRAC II sites as well as all sites/regions which are currently non-catchment

areas.

Question. When will the results of the task force's efforts be available?

Answer. The task force's initial recommendations are in the final stages of completion. They are presently in coordination among the senior staff at the Office of the Assistant Secretary of Defense (Health Affairs) and the Surgeons General. Following that process, they will be presented to the ASD(HA) and, in turn, presented by the ASD(HA) to the Service Secretaries.

Question. Will the task force provide specific recommendations on how to address the health care needs of impacted areas?

Answer. The task force recommendations will include strategies and operational design for health care initiatives for specific base closure sites and non-catchment areas.

Question. Your Department already has the authority to implement managed health care programs. What kind of programs do you envision offering military beneficiaries in areas impacted by base closings? Only Coordinated Care Programs?

Answer. The extent to which the establishment of coordinated care programs (networks) is feasible is dependent on several factors to include the projected residual military population and its anticipated utilization. Where fully developed coordinated care programs are not feasible, other options will be considered, such as extending the Health Care Finder/Participating Provider Program currently in operation in catchment areas.

Question. Provide detailed specifics on the type of program the Department plans to offer beneficiaries impacted by the closing of Carswell AFB in Texas.

Answer. These details are not yet available. The Department, with the Air Force as the lead agent, has begun developing plans with the current intent of establishing a coordinated care program for the Dallas-Fort Worth area. At this time, there are plans to issue a draft RFP and conduct a presolicitation conference for interested parties. The final RFP, when issued, will comply with the provisions of the Department's Coordinated Care Program guid

ance.

Question. Press reports indicate that beneficiaries have asked the Department to implement a program that offers the positive beneficiary incentives the Department approved for the New Orleans