Defense Health Care: DOD Should Demonstrate How Its Plan to Transfer the Administration of Military Treatment Facilities Will Improve Efficiency

In fiscal year 2017, DOD provided health care to 9.4 million beneficiaries, including servicemembers, retirees, and their families at a cost of $43 billion. For more than a decade, partially in response to congressional mandates, DOD has worked to address inefficiencies in the Military Health System to control costs.

To further achieve efficiencies, the NDAA for Fiscal Year 2017 required DOD to develop an implementation plan that addressed four elements related to transferring the administration of the MTFs to the DHA. DOD issued the plan in June 2018.

The NDAA also included a provision for GAO to review the plan. GAO determined whether (1) DOD's plan included the statutory elements related to the transfer of administration of the MTFs to the DHA and (2) additional information would be useful to demonstrate that the plan will reduce or better manage duplication and improve efficiencies. GAO assessed DOD's plan against the required elements and, where appropriate, considered the extent to which the plan provided detailed information related to key change management practices identified in past GAO work.

The Department of Defense's (DOD) June 2018 plan addressed the four statutory elements for the transfer of the administration of the military treatment facilities (MTFs) from the military departments to the Defense Health Agency (DHA). Specifically, the plan provided information on (1) how the DHA will take administrative responsibility of the MTFs; (2) efforts to eliminate duplicative activities; (3) efforts to maximize efficiencies in the DHA's activities; and (4) reductions of headquarters-level military, civilian, and contractor personnel. DOD dedicated most of the plan to describing the governance structure of the proposed administrative framework and to describing the timeline for a phased transfer of the approximately 457 MTFs to the DHA by October 1, 2021. Initially, DOD was to transfer responsibility for the administration of the MTFs to the DHA by October 1, 2018. However, Congress in the National Defense Authorization Act (NDAA) for Fiscal Year 2019 amended the law to allow, among other things, DOD to complete the transfer by September 30, 2021.

DOD has taken key steps in its June 2018 plan to improve the effectiveness and efficiency of the administration of MTFs. However, DOD's plan has two weaknesses that could be mitigated with additional information. Specifically,

DOD excluded 16 operational readiness and installation-specific medical functions from consideration for transfer to the DHA. DOD did not define or analyze the potential effect of excluding these functions, which include dental care, substance abuse, and occupational health. Senior officials from the DHA and the Assistant Secretary of Defense for Health Affairs acknowledged that transferring the dental care function, for example, from the military departments to the DHA could potentially reduce duplicative activities.

DOD's plans to achieve the stated goal of reducing headquarters-level personnel, including contractor personnel, by 10 percent are unclear. In its June 2018 plan, DOD states that the DHA will experience personnel growth during each phase of the transition, but that it expects to reduce headquarters-level personnel by 10 percent by 2021. However, the plan does not provide specific details about how DOD will achieve the established goal of reducing headquarters-level personnel by 10 percent while the DHA experiences personnel growth. Further, the plan does not address whether and how contractor personnel factor into the reduction. This lack of clarity exists because DOD has not validated headquarters-level personnel requirements or conducted a comprehensive review to identify the least costly mix of military, civilian, and contractor personnel to meet the validated requirements.

Until DOD takes action to resolve these two weaknesses, DOD will likely not be well positioned to reduce or better manage duplication and improve efficiencies, including reducing headquarters-level personnel across the Military Health System. Furthermore, Congress will lack important information to determine the extent to which the transfer of the administration of the MTFs to the DHA is being planned and implemented effectively and efficiently.

GAO recommends that DOD define and analyze the 16 operational readiness and installation-specific medical functions for duplication, validate headquarters-level personnel requirements, and identify the least costly mix of personnel. DOD concurred with all three recommendations and noted actions it was taking to address each one.

In fiscal year 2017, the Department of Defense’s (DOD) Military Health  System provided health care to 9.4 million beneficiaries including  servicemembers, retirees, and their family members at a cost of $43  billion. For more than a decade, DOD has worked to address  congressional concerns about governance-related inefficiencies in the  Military Health System, in part by responding to a number of  congressional mandates. For example, in September 2013, DOD  established the Defense Health Agency (DHA) to create a more  integrated Military Health System and achieve cost savings at  headquarters-level organizations by, among other things, streamlining the  administrative support for the military departments’ respective medical  programs. The DHA also assumed the administrative responsibility for  managing military treatment facilities (MTFs) in the National Capital  Region—specifically, the Walter Reed National Military Medical Center  and the Fort Belvoir Community Hospital. According to National Capital  Region Medical Directorate information, the DHA exercises authority,  direction, and control over approximately 6 MTFs in the National Capital  Region. MTFs, which include military hospitals, ambulatory care clinics,  and dental clinics, are part of the direct care system. According to DOD,  these MTFs total approximately 679. The direct care system represents  health care facilities and medical support organizations owned by DOD  and managed by the military departments’ respective Surgeons General.

Section 702 of the National Defense Authorization Act (NDAA) for Fiscal  Year 2017 amended Chapter 55 of title 10, United States Code, to include  a new section entitled “1073c Administration of Defense Health Agency  and military medical treatment facilities,” which describes how the DHA  will take administrative responsibility of the MTFs. According to that  section, the Director of the DHA shall be responsible for the  administration of each MTF, including with respect to budgetary matters;  information technology; and health care administration and management,  among other things.

Section 702 of the NDAA for Fiscal Year 2017 required that the Secretary  of Defense develop a plan that includes four elements, such as how the  Secretary will carry out subsection (a) of section 1073c of title 10 of the  United States Code and efforts to eliminate duplicative activities, among  others. DOD provided three interim reports to Congress in response to  section 702. The first two interim reports, dated March 31, 2017, and  June 30, 2017, were DOD’s preliminary draft of the plan. In these  reports, DOD discussed its intent to use the “component model” as the  administrative framework. Under the component model, the Director of  the DHA would administer each MTF through military department-led  intermediary component commands and military department-led MTFs.  Congress, in the Conference report accompanying the NDAA for Fiscal  Year 2018 that was issued in November 2017, raised concern about the  component model. The third interim report, which DOD provided to  Congress March 30, 2018, did not include the component model as  DOD’s administrative framework, but provided details on a new proposed  framework to transition MTF administration and management to the  DHA. According to the third interim report, DOD decided after deeper  analysis and discussions with Congress that the component model did  not adequately satisfy the requirements of subsection (a) of section  1073c. DOD submitted its final plan (hereinafter referred to as the plan) to  Congress on June 28, 2018. Figure 1 provides a timeline of DOD’s  efforts in response to section 702.

Section 702 also includes a provision for us to review the plan by  September 1, 2018. In this report, we determined whether (1) DOD’s  plan included the statutory elements related to the transfer of the  administration of the MTFs to the DHA and (2) additional information  would be useful to demonstrate that the plan will reduce or better manage  duplication and improve efficiencies.

For objective one, we determined whether DOD’s plan included the four  elements set forth in the statute. Two analysts independently conducted  this assessment and reconciled any differences to reach a consensus on  the overall assessment. For objective two, where appropriate, we also  considered the extent to which the plan provided detailed information  related to key change management practices identified in our prior work,  which could help ensure that DOD effectively and efficiently achieves its  goals. We also reviewed key planning documents identified by DOD in  developing the plan and other relevant documents, such as the Under  Secretary of Defense for Personnel and Readiness memorandums  related to section 702 and concepts of operations from the Assistant  Secretary of Defense for Health Affairs; the DHA; and the Army, the  Navy, and the Air Force departments.

For both objectives, we corroborated our understanding of the plan by  conducting interviews with officials from the Office of the Under Secretary  of Defense for Personnel and Readiness; the Office of the Assistant  Secretary of Defense for Health Affairs; the DHA; the Health Care  Management Reform Team (one of the reform teams created in 2017 by  the DOD to address improved mission effectiveness and efficiencies in  DOD); the Office of Cost Assessment and Program Evaluation; the Army  Medical Command, Office of the Surgeon General and the Office of the  Assistant Secretary of the Army Manpower and Reserve Affairs; the Navy  Bureau of Medicine and Surgery; the Air Force Medical Service; and the  Joint Staff Surgeon.

We conducted this performance audit from March 2018 to October 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

History of Military Health System Reforms

For over a decade, Congress and DOD have led a series of efforts to  address the governance structure of the Military Health System, including  recommending and implementing significant organizational realignments.  DOD undertook a significant organizational realignment effort in June  2011, creating an internal task force to review the governance of the  Military Health System and subsequently identified as priorities cost  containment, greater integration, and increased unity of effort. In March  2012, DOD submitted a report to Congress that, among other things,  proposed creating the DHA to achieve cost savings at headquarters- and  administrative-level organizations, TRICARE, the headquarters of military  departments’ medical commands and agencies, and other management  organizations within the Military Health System that do not directly provide  health care services. DOD established the DHA in September 2013 to  provide administrative support for the military departments’ respective  medical programs by adopting common clinical and business processes,  combining common shared services, and coordinating the work of the  military departments’ respective MTFs and care purchased from the  private sector. The DHA also assumed the administrative responsibility  for managing the MTFs in the National Capital Region.

The NDAA for Fiscal Year 2013 required that DOD create a detailed plan  for carrying out its health care system reform to include the goals of the  reform and performance measures to achieve them; the personnel levels  required for the DHA and the National Capital Region Medical  Directorate; and specific information on the shared services, among other  things. In 2015, we reported on DOD’s establishment of the DHA and  made five recommendations, and DOD concurred or partially concurred with all of these recommendations. DOD has implemented two of the  five recommendations by completing some baseline personnel  assessments of the DHA workforce and reporting the number and cost of  administrative headquarters personnel within the Military Health System  in DOD’s fiscal year 2018 Defense Health Program budget estimates. Of  the three open recommendations, two relate directly to assessing  personnel requirements within the DHA. As of January 2018, these  recommendations have not been fully addressed and remain open  because DOD has not established processes and procedures to create  an overall personnel management process for the DHA.

In December 2016, Congress expanded the role of the DHA by directing  the transfer of responsibility for the administration of each MTF from the  military departments to the DHA. Pursuant to section 1073c(a) of title  10, United States Code, the Director of the DHA shall be responsible for  the administration of each MTF, including with respect to budgetary  matters, information technology, health care administration and  management, administrative policy and procedure, military medical  construction, and any other matters the Secretary of Defense determines  appropriate. Section 702 of the NDAA for Fiscal Year 2017 required that  the Secretary of Defense develop a plan to implement section 1073c of  title 10, United States Code, that includes the following four elements:  A.  how the Secretary will carry out subsection (a) of section 1073c of title  10 of the United States Code;  B.  efforts to eliminate duplicative activities carried out by the elements of  the DHA and military departments;  C.  efforts to maximize efficiencies in the activities carried out by the  DHA; and  D.  how the Secretary will implement section 1073c in a manner that  reduces the number of members of the armed forces, civilian  employees who are full-time equivalent employees, and contractors  relating to the headquarters activities of the Military Health System, as  of the date of the enactment of the act.

Section 702 of the NDAA for Fiscal Year 2017 also included a provision  for us to review DOD’s interim and final reports on the implementation  plan. In our review of DOD’s plan in September 2017, we noted that  DOD had selected the component model—in which the Director of the  DHA would administer each MTF through military department-led  intermediary component commands and military department-led MTFs— as the administrative model DOD would use to meet the requirements  specified in section 702. Congress, in the Conference report  accompanying the NDAA for Fiscal Year 2018 that was issued in  November 2017, raised concern about DOD’s lack of progress on the  development of the plan and about the component model. Specifically,  Congress noted that the component model was an attempt to maintain  current stove-piped organizational constructs that risk continued  inefficiencies in the Military Health System command and governance  structure. In the third interim report, DOD found that the component  model would not be adequate to satisfy statutory requirements and  subsequently changed from the component model to a new administrative  framework.

Amendments from the NDAA for Fiscal Year 2019

The NDAA for Fiscal Year 2019 amended section 1073c of title 10, United  States Code. The NDAA for Fiscal Year 2019, among other things,  provided additional authorities to the Director of the DHA, such as the  authority to determine total workforce requirements at each MTF and  established within the DHA two subordinate organizations—one for  research and development, and one for public health. Additionally, the  NDAA for Fiscal Year 2019 extended the date for the transfer of the  administration of the MTFs to the DHA from the original deadline of  October 1, 2018, to September 30, 2021. Section 1073c of title 10, United  States Code, including these amendments, is reproduced in appendix I.

Roles and Responsibilities of Key DOD Entities in the Military Health System

Currently, the Under Secretary of Defense for Personnel and Readiness,  the Assistant Secretary of Defense for Health Affairs, the DHA, and the  military departments have various responsibilities for the oversight and  management of the Military Health System:

The Under Secretary of Defense for Personnel and Readiness is the  principal staff assistant and advisor to the Secretary and Deputy  Secretary of Defense for health affairs and, in that capacity, develops  policies, plans, and programs for health and medical affairs.

The Assistant Secretary of Defense for Health Affairs has the primary  responsibility for the Military Health System and serves as the  principal advisor to the Under Secretary of Defense for Personnel and  Readiness for all DOD health policies, programs, and activities. The  Assistant Secretary of Defense for Health Affairs also has the  authority to develop policies; conduct analyses; issue guidance;  provide advice and make recommendations to the Secretary of  Defense, the Under Secretary of Defense for Personnel and  Readiness, and others; and provide oversight to the DOD  components on matters pertaining to the Military Health System.  Further, the Assistant Secretary of Defense for Health Affairs  prepares and submits a DOD Unified Medical Program budget to  provide resources for the Military Health System.

The Director of the DHA, in addition to carrying out the responsibilities  outlined above, manages the execution of policy developed by the  Assistant Secretary of Defense for Health Affairs.

The Secretaries of the military departments coordinate with the  Assistant Secretary of Defense for Health Affairs to develop certain  Military Health System policies, standards, and procedures and  provide military personnel and other authorized resources to support  the activities of the DHA, among other things. The Surgeon General of  each military department serves as the principal advisor to the  Secretary of the military department concerned on all health and  medical matters of the military department.

DOD Addressed the Statutory Elements for the Transfer of the Administration of the MTFs to the DHA

DOD addressed each of the four statutory elements in its June 2018 plan.  DOD dedicated most of the plan to describing the governance structure of  DOD’s new administrative framework and to describing the schedule for  the phased transfer of the administration of approximately 457 MTFs to  the DHA by October 1, 2021. DOD’s plan provided less detail on  addressing efforts to eliminate duplicative activities; maximizing  efficiency; and reducing the number of headquarters-level military,  civilian, and contractor personnel. The following provides a summary of  what DOD’s plan included for each of the four elements in the statute:  Information on efforts to transfer the administration of the MTFs  to the DHA. In its plan, DOD described the transfer of the MTFs to  the DHA, including budgetary matters, information technology, health  care administration and management, administrative policy and  procedure, military medical construction, and all other MTF  operations. DOD dedicated most of the plan to describing the (1) new  governance structure of the proposed administrative framework model  and (2) timeline for the phased transfer of the administration of the  457 MTFs from the military departments’ respective medical  commands to the DHA. For example, DOD states that Military Health  System governance will shift its focus from consensus-driven bodies  that address both policy and management issues to a smaller,  streamlined set of oversight councils that focus on high-level, Military  Health System-wide policy and budgetary matters. According to the  plan, the Assistant Secretary of Defense for Health Affairs will resolve  matters that involve both the military departments and the DHA. DOD  also stated that the DHA plans to establish six intermediate  management organizations (two for each region) to assist with the  administration and management of the MTFs, which are broken out as  follows: an East Region, a West Region, and outside the United  States. Further, DOD stated that the DHA had established an  Assistant Director position for Health Care Administration, as well as  four Deputy Assistant Director positions for Information Operations,  Financial Operations, Health Care Operations, and Medical Affairs.

Regarding the timeline for the phased transfer, beginning no later than  October 1, 2018, DOD will transfer 5 of its approximately 679 MTFs  to the DHA for the first phase of the transition. MTFs transferring to  the DHA for the first phase include the Womack Army Medical Center,  Fort Bragg; the Naval Hospital Jacksonville; Force 81st Medical  Group, Keesler Air Force Base; 4th Medical Group, Seymour Johnson  Air Force Base; and 628th Medical Group, Joint Base Charleston. In  the second phase of the transition, which will begin no later than  October 1, 2019, DOD will transfer 244 MTFs from the East Region to  the DHA. The third phase will begin no later than October 1, 2020,  and will include 134 MTFs from the West Region. The fourth phase  will include 79 MTFs outside the United States and begin no later than  October 1, 2021. DOD also provided DHA organizational charts for  each of the four phases.

Information on efforts to eliminate duplicative activities carried  out by the DHA and the military departments. In its plan, DOD  noted that it is undertaking an analysis of the functions that will be  performed at DHA headquarters and at the military departments’  respective medical department headquarters. In the plan, DOD  provided three figures listing the functions, functional responsibilities,  and functional requirements that will be carried out by the DHA, the  DHA intermediate management organizations, and the military  departments’ medical department headquarters. Specifically, the  functions listed included those functions that should be with the DHA  intermediate management organizations, such as Emergency  Planning and Preparation, and those functions that should be with the  military departments’ medical department intermediate commands or  headquarters, such as Quality and Safety for Healthcare in the  Operational Setting. The three figures primarily focused on functions  to be performed during the first phase of the transition.

Information on efforts to maximize efficiencies in the activities  carried out by the DHA. In its plan, DOD included information  about its three principle efforts currently underway to address  efficiencies. Specifically, DOD describes its broader efforts to  streamline clinical and business processes across the Military Health  System and links some of these broader initiatives to section 702.  According to the plan, efforts such as the use of centralized contract  support functions and common purchasing, among others, are made  possible because of the transfer of the administration of the MTFs to  the DHA. Specific to the transfer of MTFs to the DHA as required by  section 1073c of title 10 of the United States Code, DOD’s plan stated  that the DHA is developing, publishing, and implementing procedural  instructions to help administer and manage the MTFs. The plan also  states that each MTF transferring to the DHA will establish a  performance plan—referred to as a quadruple aim performance  plan—to monitor performance. According to the plan, Military Health  System leadership adopted the quadruple aim performance plan to  monitor MTF performance, which they believe will improve  performance and contribute to better outcomes and increased  efficiencies. The plan states that the performance of all MTFs in the  Military Health System will be monitored using the Military Health  System quadruple aim performance plan measures beginning  October 1, 2018.

Information on reducing headquarters-level military, civilian, and  contractor personnel within the Military Health System. In its  plan, DOD noted that it has already programmed a 25-percent  reduction in personnel positions aligned to medical headquarters  across the enterprise. Specific to the transfer of MTFs to the DHA as  required by section 1073c of title 10 of the United States Code, DOD  states that the DHA will experience personnel growth during each  subsequent phase of the transition in order to undertake its new  responsibilities. Additionally, the plan states that DOD expects at least  a 10-percent reduction (approximately 695 positions from the current  baseline) in headquarters military and civilian personnel by the end of  the transition. However, the plan does not provide specific details  about how it will achieve the 10-percent reduction while the DHA  experiences personnel growth during each phase. The plan includes a  figure depicting military and civilian full-time equivalent positions for  the current baseline of the DHA and the military departments’  respective medical department headquarters and intermediate  commands. Contractors are also mentioned in the plan at a high level,  but without specific data. Additionally, DOD continues to take steps to  evaluate personnel requirements. Specifically, according to two June  2018 Under Secretary of Defense for Personnel and Readiness  memorandums, DOD is conducting a review and validation of  headquarters-level personnel requirements, which we discuss in more  depth later in this report.

Additional Information Would Be Useful to Demonstrate How the Plan Will Reduce or Better Manage Duplication and Improve Efficiencies

DOD’s June 2018 plan takes steps toward reducing duplication and  improving effectiveness and efficiency, as previously discussed.  However, the plan has two weaknesses that could be mitigated with  additional information from DOD. Specifically, DOD cannot be reasonably  assured that its plan will reduce or better manage duplication and improve  efficiency since (1) certain functions are excluded from the transfer to the  DHA and (2) it is unclear, based on the information in the plan and  supporting planning documents, how implementation of the plan will result  in the achievement of the stated goal of reducing headquarters-level  personnel, including contractor personnel, by 10 percent.

DOD Excluded Certain Functions from the Planned Transfer to the DHA That Could Reduce or Better Manage Duplication

As part of its approach for addressing the requirements of section 702 of  the NDAA for Fiscal Year 2017, DOD excluded 16 medical functions from  the transfer to the DHA. In a February 2018 Under Secretary of Defense  for Personnel and Readiness memorandum, these functions were  identified as being related to operational readiness and installation- specific missions. That memorandum and another memorandum from  the Under Secretary of Defense for Personnel Readiness dated May  2018 listed 16 functions that DOD identified as operational readiness and  installation-specific medical functions and that would therefore be  excluded from the planned transfer to the DHA (see table 1).

DOD cannot be reasonably assured that its plans are reducing or better  managing duplication because DOD has not defined the functions or  analyzed the potential for the 16 functions to be transferred to the DHA.  These functions are not defined in the February or May 2018  memorandums or DOD’s plan. The two memorandums list only the  functions and state that they are separate from MTF health care delivery  services and MTF business operations. One of the memorandums  explains that these functions are tied to organizing, training, and  equipping personnel for operational readiness missions. These memorandums also do not explain the rationale used to determine that  the 16 functions were different from the other MTF health care functions  DOD plans to transfer to the DHA. Further, DOD did not provide any  analysis or documentation regarding the decision to exclude these 16  functions in the supporting documentation that we reviewed, such as in  the concepts of operations for the Assistant Secretary of Defense for  Health Affairs, the DHA, the Army, the Navy, and the Air Force. According  to senior-level officials from the Assistant Secretary of Defense for Health  Affairs and the DHA, there was no formal analysis or documentation to  support the decision.

With respect to the exclusion of the transfer of the dental care function to  the DHA, Assistant Secretary of Defense for Health Affairs and DHA  senior-level officials stated that dental clinics serve only servicemembers,  not retirees or family member beneficiaries. Therefore, dental care was  considered to be an operational readiness function rather than a health  care delivery function, according to these same officials. However, this  statement is not completely in line with DOD information regarding  overseas dental care and family member beneficiaries. According to DOD  information regarding dental care overseas, family members of active- duty servicemembers can receive dental care from military dental clinics.  As such, in some instances the delivery of dental care is not solely for  ensuring the readiness of servicemembers. Further, senior-level officials  from the Assistant Secretary of Defense for Health Affairs and the DHA  acknowledged that transferring the dental care function from the military  departments to the DHA could potentially reduce duplicative activities and  result in more efficiencies. According to a senior-level DHA official,  splitting health care and dental care results in two separate health care  delivery organizations.

Across the Military Health System there are approximately 247 (200 in the  United States) dental clinics, which represent about a third of DOD’s  facilities within the direct care system when including dental clinics,  military hospitals, and ambulatory care clinics (i.e., approximately 679  facilities in total). Moreover, senior-level officials from the Assistant Secretary of Defense for Health Affairs and the DHA stated that by  transferring a function from the military departments to the DHA, DOD  reduces the number of managers of a function from four (i.e., at the Army,  the Navy, the Air Force, and the DHA) to only one at the DHA.

In our prior work, we have reported that agencies can act to improve the  efficiency of their programs by maximizing the level of services provided  for a given level of resources, as well as improving programs’  effectiveness in achieving their objectives. In particular, we have  highlighted the need for agencies to define their mission, functions,  activities, services, and processes when identifying fragmentation,  overlap, and duplication among programs. Agencies should also assess  how, if at all, the fragmented, overlapping, or duplicative functions are  related and how they are being coordinated between agencies.  Understanding this relationship will help inform decisions about whether  and how to increase efficiency or reduce or better manage fragmentation,  overlap, or duplication. Also, agencies should assess whether potential  effects in areas such as program implementation, outcomes, and costs  are positive or negative. Identifying the positive and negative effects of  fragmentation, overlap, or duplication will help agencies determine  whether or not actions to reduce or better manage the fragmentation,  overlap, or duplication are economical and efficient.

However, DOD has not fully determined whether opportunities exist to  achieve additional savings due to the lack of analysis, including clear  definitions, of the 16 functions that were excluded by DOD. According to  senior-level officials from the Assistant Secretary of Defense for Health  Affairs and the DHA, there are potential savings by transferring the 16  functions to the DHA, but these have not been adequately analyzed.  Without defining and analyzing the 16 functions, DOD cannot assure  decisionmakers that it has fully considered all opportunities for reducing  or better managing duplication in its plan to transfer the administration of  the MTFs to the DHA.

DOD Has Not Demonstrated That Its Plan Will Lead to Reductions in Headquarters Personnel

As previously discussed, DOD’s plan identifies the functions that will  transfer to the DHA. However, DOD’s plan and supporting documents do  not provide details on how DOD established the 10-percent reduction of  headquarters-level military, civilian, and contractor personnel by 2021,  when the administration of the 457 MTFs is to have been transferred to  DHA. The plan also states that DHA personnel will grow during each  subsequent phase of the transition. Further, information in other related  supporting documentation indicates that headquarters-level personnel will  increase rather than decrease to achieve the 10-percent reduction goal.  Lastly, DOD did not include information in the plan or in its supporting  documents concerning contractor personnel reductions.

Officials from the Army, the Navy, the Air Force, the DHA, and the Office  of Cost Assessment and Program Evaluation could not identify for us  what office within DOD established the 10-percent reduction goal. Our  review of key planning documents—the concepts of operations for the  Assistant Secretary of Defense for Health Affairs, the DHA, the Army, the  Navy, and the Air Force—found that these documents also did not  provide details for the 10-percent reduction of headquarters personnel.  Specifically, although these documents included some information  regarding personnel reductions, they did not include specific details  concerning the 10-percent reduction of headquarters personnel.

DOD states in the plan that the DHA will experience incremental growth in  staffing during each phase of the transition in order to undertake its new  responsibilities, but does not explain how it will achieve its 10-percent  reduction goal given the projected growth. Further, DOD does not provide  any data in the plan about how much the DHA will grow during each  phase. Senior-level officials from the offices of the Assistant Secretary of  Defense for Health Affairs and the DHA stated that there were no explicit  restrictions in section 702 of the NDAA for Fiscal Year 2017 that would  prohibit the DHA from increasing its number of personnel. However,  section 702 does require that the Secretary implement section 1073c in a  manner that reduces the number of members of the armed forces; civilian  employees who are full-time equivalent employees; and contractors  relating to the headquarters activities of the military health system, which  includes the DHA.

Further, the projected growth described in DOD’s plan is also consistent  with a June 2018 DHA pre-decisional draft briefing concerning full-time  equivalent positions based on current information provided by the military  departments, which describes a transfer of personnel to the DHA from the  military departments rather than a reduction in personnel. According to  the briefing, full-time equivalents to support future DHA headquarters and  intermediate management organizations would not lead to any reductions  in personnel. On the contrary, the briefing states that full-time equivalents  for military and civilian personnel would increase by 38 percent at the  DHA and result in additional costs. A senior-level DHA official confirmed  that the information in the briefing relates to a transfer of personnel from  the military headquarters to the DHA for health care delivery, not a  reduction in personnel that would result in no cost savings. The briefing  also states that information related to current and future state full-time  equivalent positions is misleading because contractor data, as well as  other relevant personnel data, are not included.

Regarding contractor data, DOD did not include any detailed information  related to the reduction of contractor personnel in the plan. Specifically,  information concerning contractor personnel reductions was not included  in the figure or other parts of the section concerning headquarters-level  personnel reductions. Overall, contractors are referenced only five times  in the entire plan:

Three of the references are simply repeating the language from the  statutory requirement.

Another reference reiterates that the DHA will assume management  responsibilities for civilian and contractor personnel performing health  care delivery functions and operations.

The last reference from the section of the plan related to personnel  reductions states that DOD is planning for headquarters personnel  reductions, to include military, civilian, and contractor personnel.

In reviewing the concepts of operations for the Assistant Secretary of  Defense for Health Affairs, the DHA, the Army, the Navy, and the Air  Force for details on contractor personnel, we found that most of these  documents did not provide details regarding contractors. Four out of five  of the aforementioned concepts of operations did not include information  concerning contractors in the context of personnel reductions. Although  the Assistant Secretary of Defense for Health Affairs’ concept of  operations does include information about contractors in the context of  personnel reductions, the information does not provide further details  about DOD’s plans for this effort.

According to DOD Directive 1100.4, Guidance for Manpower  Management, it is DOD policy that personnel requirements are driven by  workload and shall be established at the minimum levels necessary to  accomplish mission and performance objectives. This directive states  that personnel is a resource and that changes in personnel shall be  preceded by changes to the programs, missions, and functions that  require personnel resources. Additionally, the directive states that  assigned missions shall be accomplished using the least costly mix of  personnel (military, civilian, and contract) consistent with military  requirements, among other considerations. The directive also states that  military (active and reserve) and civilian manpower resources shall be  programmed in accordance with validated personnel requirements,  among others. Moreover, key change management practices concerning  workforce reductions state that before implementing workforce reduction  strategies, it is critical that agencies carefully consider how to strategically  downsize the workforce and maintain the staff resources to carry out its  mission. These same key change management practices also define  “efficiency” as maintaining federal government services or outcomes  using fewer resources (such as time and money) or improving or  increasing the quality or quantity of services or outcomes while  maintaining (or reducing) resources.

However, DOD’s ability to develop an analytically-based goal for  personnel reductions associated with the transfer of administration to  DHA, a plan to achieve that goal given that it is projecting growth in  personnel, and how contractors factor into its plan has been limited for  two reasons. First, DOD has not validated headquarters-level personnel  requirements. Second, DOD has not conducted a comprehensive  review—a review that, per DOD’s own guidance, would involve  establishing at minimum levels the requirements necessary to accomplish  mission and performance objectives and reflect the consideration of the  least costly mix of personnel (i.e., military, civilian and contract) consistent  with military requirements, among other considerations, to meet the  validated requirements.

Senior-level officials from the offices of the Assistant Secretary of  Defense for Health Affairs and the DHA stated that information regarding  contractor personnel reductions was not included in the plan because  DOD probably did not have these data. These same officials said that it is  difficult to obtain contractor personnel data. As we previously noted,  DOD has faced challenges with understanding DHA headquarters  personnel requirements and composition. In 2015, we reported on DOD’s  establishment of the DHA and on how, among other things, DOD could  not determine DHA’s effect on Military Health System administrative and  headquarters personnel levels. We found that the DHA had not  completed the personnel requirements assessment process or developed  a baseline estimate of personnel in the Military Health System before the  DHA was created. As discussed previously, we made five  recommendations, with which DOD concurred or partially concurred. As  of January 2018, DOD had not taken action to fully address three of these  recommendations. Of the three recommendations that had not been fully  addressed, two relate directly to DHA personnel requirements.  Specifically, we recommended the following:

To provide decision makers with appropriate and more complete  information on the continuing implementation, management, and  oversight of the DHA, the Secretary of Defense should direct the  Assistant Secretary of Defense for Health Affairs to develop a  comprehensive requirements assessment process that accounts for  needed future skills through the consideration of potential  organizational changes and helps ensure appropriate consideration of  workforce composition through the determination of the final status of  military personnel within the DHA.

To provide decision makers with appropriate and more complete  information on the continuing implementation, management, and  oversight of the DHA, the Secretary of Defense should direct the  Assistant Secretary of Defense (Health Affairs) to develop a plan for  reassessing and revalidating personnel requirements as the missions  and needs of the DHA evolve over time.

Since the recommendations concerning DHA personnel requirements  have not been fully addressed and DHA is in the middle of a significant  organizational change, it would be timely for DOD to validate  headquarters-level personnel requirements and conduct a comprehensive  review to determine the appropriate mix of personnel. This validation and  comprehensive review should occur prior to transferring authority,  direction, and control of the MTFs to the DHA for the third phase, which,  as previously noted, is scheduled to begin no later than October 1, 2020.

In June 2018, DOD directed a review and validation of headquarters-level  personnel requirements. The Under Secretary of Defense for Personnel  and Readiness issued two memorandums concerning the review of  headquarters-level personnel requirements. The June 7, 2018,  memorandum directs the establishment of cross-service manpower  teams to conduct a baseline review of DHA headquarters’ current and  future personnel requirements. Similarly, the June 15, 2018,  memorandum directs the establishment of a working group to determine  the appropriate manning of all above MTF-level medical activities in the  military departments. This memorandum also requires the working group  to review and validate the results of the cross-services manpower teams’  assessment of DHA headquarters activities, among other requirements.

Officials with the Office of the Under Secretary of Defense for Personnel  and Readiness involved in these efforts said that the goal of the current review is to identify the DHA’s current and future baseline personnel  requirements. However, according to these same officials, the review will  not (1) validate personnel requirements because of time constraints, (2)  identify potential personnel reductions, or (3) consider workforce  composition. These officials also clarified that a comprehensive personnel  requirements study would take a considerable amount of time and would  generate more technical estimates of the work being performed. They  said such a study would review major functions and subfunctions, as well  as get down to the task level and analyze work processes, which would  allow for making process improvement suggestions.

In September 2018, the Office of the Under Secretary of Defense for  Personnel and Readiness issued the report on DHA’s personnel  requirements. The report stated that DHA personnel requirements  would increase to support an expanded mission and included several  recommendations one of which was to conduct a military essentiality  review of DHA positions and functions. According to officials with the  Office of the Under Secretary of Defense for Personnel and Readiness,  each military department provided headquarters personnel data, which  will be reviewed as part of the upcoming Program Budget Review cycle.

Until DOD validates headquarters-level personnel requirements and  conducts a comprehensive review that considers the least costly mix of  personnel, DOD may not be able to achieve its goal of reducing  headquarters-level personnel by 10 percent while maintaining the efficient  and effective provision of healthcare services. Furthermore, Congress will  lack important information to determine the extent to which the transfer of  the administration of the MTFs to the DHA is being planned and  implemented effectively and efficiently.

Congress required DOD to provide a plan to transfer the administration of  the MTFs from the military departments to the DHA. DOD provided a final  implementation plan, which made significant changes to the  administrative approach described in two of DOD’s initial interim plans. In  its final plan, DOD addressed all of the elements of the statute. However,  the plan did not provide details to demonstrate how DOD will reduce  duplicative activities or headquarters-level personnel. Without defining  and analyzing the 16 functions currently excluded from transfer to the  DHA, validating headquarters-level personnel requirements, and  conducting a comprehensive review to determine, per DOD guidance, the  least costly mix of personnel, DOD and congressional decisionmakers are  not positioned to know how, whether, and to what extent undertaking this  significant reform effort will improve effectiveness and efficiency in the  administration of the MTFs.

We are making the following three recommendations to the DOD:  The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Health Affairs, in coordination with Director of the DHA and  the Surgeons General of the military departments, define and analyze   the 16 operational readiness and installation-specific medical functions  currently excluded from transfer to the DHA to determine whether  opportunities exist to reduce or better manage duplicative functions   and improve efficiencies in the administration of the MTFs.  (Recommendation 1)

The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Health Affairs, in coordination with DHA Assistant Director for  Health Care Administration and the Secretaries of the military  departments, validate headquarters-level personnel requirements to  determine that they are established at the minimum levels necessary— per DOD guidance—to accomplish missions and achieve objectives  before transferring authority, direction, and control of the MTFs to the  DHA for the third phase. (Recommendation 2)

The Secretary of Defense should ensure that the Assistant Secretary of  Defense for Health Affairs, in coordination with DHA Assistant Director for  Health Care Administration and the Secretaries of the military  departments, conduct a comprehensive review to identify the least costly  mix—per DOD guidance—of military, civilian, and contractors needed to  meet validated requirements—that is, to perform the functions identified  at the DHA headquarters and intermediate management organizations  and at the military departments’ headquarters and intermediate  commands. Additionally, this comprehensive review should be completed  before transferring authority, direction, and control of the MTFs to the  DHA for the third phase. (Recommendation 3)

In written comments reproduced in appendix II, DOD concurred with all  three recommendations and noted the actions it was taking to address  each recommendation.

In response to our third recommendation, DOD noted that it has  completed an extensive review of manpower requirements for the  management structure of the DHA. The September 2018 report by the  Office of the Under Secretary of Defense for Personnel and Readiness is  a first step toward addressing our recommendation. The report provided  initial information concerning DHA’s personnel requirements. As we noted  in our report, however, DOD needs to identify the least costly mix—per  DOD guidance—of military, civilian, and contractors once it has validated  requirements for DHA.

As an additional comment, DOD noted that since our draft report was  provided for comment it has refined the estimated projected growth in full- time equivalents for military and civilian personnel at the DHA from 38  percent to 14 percent. In its comments, DOD stated that it continues to  believe that it will achieve a 10 percent reduction. However, as we stated  in this report, DOD has not demonstrated the extent to which its plan to  transfer the MTFs to the DHA will lead to reductions in headquarters-level  personnel.

We are sending copies of this report to the appropriate congressional  committees. We are also sending copies to the Secretary of Defense; the  Under Secretary of Defense for Personnel and Readiness; the Assistant  Secretary of Defense for Health Affairs; the Director, Cost Assessment  and Program Evaluation; the Director, Defense Health Agency; the  Surgeon General of the Army; the Surgeon General of the Navy; and the  Surgeon General of the Air Force.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made key  contributions to this report are listed in appendix III.

Appendix I: Section 1073c of Title 10, United States Code

The National Defense Authorization Act (NDAA) for Fiscal Year 2017  amended Chapter 55 of title 10, United States Code to include a new  section: § 1073c Administration of Defense Health Agency and military  medical treatment facilities. Section 1073c of title 10, United States Code,  as amended by Pub. L. No. 115-91, §§ 713, 1081 (2017), and Pub. L. No.  115-232, § 711 (2018) reads as follows:  § 1073c. Administration of Defense Health Agency and military  medical treatment facilities  (a) Administration of military medical treatment facilities.  (1)  In accordance with paragraph (4), by not later than  September 30, 2021,  the  Director  of  the  Defense  Health  Agency  shall  be  responsible  for  the administration of each  military medical treatment facility, including with respect to--  (A) budgetary matters;  (B) information technology;  (C) health care administration and management;  (D) administrative policy and procedure;  (E) military medical construction; and  (F) any other matters the Secretary of Defense determines  appropriate.  (2)  In addition to  the responsibilities set forth in paragraph (1),  the Director of the Defense Health Agency shall, commencing  when the Director begins to exercise responsibilities under  that paragraph, have the authority—  (A) to direct, control, and serve as the primary rater of the  performance of commanders or directors of military  medical treatment facilities;  (B) to direct and control any intermediary organizations  between the Defense Health Agency and military medical  treatment facilities;  (C) to determine the scope of medical care provided at each  military medical treatment facility to meet the military  personnel readiness requirements of the senior military  operational commander of the military installation;  (D) to determine total workforce requirements at each military  (E) to direct joint manning at military medical treatment  facilities and intermediary organizations;  (F) to address personnel staffing shortages at military medical  (G)  to select among service nominations for commanders or  directors of military medical treatment facilities.  (3) The military commander or director of each military medical  treatment facility shall be responsible for--  (A) ensuring the readiness of the members of the armed  forces and civilian employees at such facility; and  (B) furnishing the health care and medical treatment provided  at such facility.   (4)  The Secretary of Defense shall establish a timeline to ensure  that each Secretary of a military department transitions the  administration of military medical treatment facilities from  such Secretary to the Director of the Defense Health Agency  pursuant to paragraph (1) by the date specified in such  paragraph.  (5)  The  Secretary  of  Defense  shall  establish  within  the  Defense  Health  Agency  a  professional  staff  to provide  policy, oversight, and direction to carry out paragraphs (1)  and (2). The Secretary shall carry out this  paragraph by  appointing the positions specified in subsections (b) and (c). (b) DHA Assistant Director.  (1)  There  is  in  the  Defense  Health  Agency  an  Assistant  Director  for  Health  Care  Administration.  The  Assistant  Director shall--  (A) be a career appointee within the Department; and  (B) report directly to the Director of the Defense Health  Agency.  (2) The Assistant Director shall be appointed from among  individuals who have equivalent education and  experience  as a chief executive officer leading a large, civilian health  care system.  (3) The Assistant Director shall be responsible for the following:  (A) Establishing priorities for health care administration and  management.  (B) Establishing policies, procedures, and direction for the  provision of direct care at military medical treatment  facilities.  (C) Establishing priorities for budgeting matters with  respect to the provision of direct care at military  medical treatment facilities.  (D) Establishing policies,  procedures,  and  direction  for  clinic  management  and  operations at military medical  treatment facilities.  (E)  Establishing  priorities  and  between  the  military  medical  treatment  facilities. (c) DHA Deputy Assistant Directors.  (1) (A) There is in the Defense Health Agency a Deputy Assistant  Director for Information Operations.  (B) The Deputy Assistant Director for Information  Operations shall be responsible for policies,  management,  and  execution  of  information technology  operations  at  and  between  the  military  medical treatment facilities.  (2)  (A) There is in the Defense Health Agency a Deputy  Assistant Director for Financial Operations.  (B) The Deputy Assistant Director for Financial Operations  shall be responsible for the policy, procedures,  and  direction  of  budgeting  matters  and  financial  management  with  respect  to  the  provision of direct care across the  military health system.  (3)  (A) There is in the Defense Health Agency a Deputy  Assistant Director for Health Care Operations.  (B)  The  Deputy  Assistant  Director  for  Health  Care  Operations  shall  be  responsible  for  the  policy,  procedures, and direction of health care administration in  the military medical treatment facilities.  (4)  (A) There is in the Defense Health Agency a Deputy  Assistant Director for Medical Affairs.  (B) The Deputy Assistant Director for Medical Affairs shall  be responsible for policy, procedures, and  direction  of  clinical  quality  and  process  improvement,  patient  safety,  infection  control,  graduate  medical education, clinical  integration, utilization review, risk management, patient  experience, and civilian physician recruiting.  (5)  Each Deputy Assistant Director appointed under  paragraphs (1) through (4) shall report directly to the  Assistant Director for Health Care Administration.  (d) Certain responsibilities of DHA Director.  (1) In addition to the other duties of the Director of the Defense  Health Agency, the Director shall coordinate  with the Joint  Staff Surgeon to ensure that the Director most effectively  carries out the responsibilities of the Defense Health  Agency as a combat support agency under section 193 of  this title.  (2) The responsibilities of the Director shall include the following:  (A) Ensuring  that  the  Defense  Health  Agency  meets  the  the the  commanders  of  operational  needs  of  combatant commands.  (B)  Coordinating  with the military departments to ensure  that the staffing at the military medical treatment  facilities supports readiness requirements for members  of the armed forces and health care personnel.  (C) Ensuring  that  the  Defense  Health  Agency  meets  the  military  medical  readiness  requirements  of  the  senior  military  operational  commanders  of  the  military  installations.  (e) ADDITIONAL DHA ORGANIZATIONS.—Not later than  September 30, 2022, the Secretary of Defense shall, acting  though the Director of the Defense Health Agency, establish  within the Defense Health Agency the following:  (1)  A subordinate organization, to be called the Defense Health  (A) led,  at  the  election  of  the  Director,  by  a  director  or  commander (to be called the Director or Commander of  Defense Health Agency Research and Development);  (B) comprised of the Army Medical Research and Materiel  Command and such other medical research  organizations and activities of the armed forces as the  Secretary considers appropriate; and  (C) responsible for coordinating funding for Defense Health  Program Research, Development, Test, and Evaluation,  the Congressionally Directed Medical Research  Program, and related Department of Defense medical  research.  (2)  A subordinate organization, to be called the Defense Health  (A) led, at the election of the Director, by a director or  commander (to be called the Director or Commander of  Defense Health Agency Public Health); and  (B) comprised of the Army Public Health Command, the  Navy–Marine Corps Public Health Command, Air Force  public health programs, and any other related defense  health activities that the Secretary considers appropriate,  including overseas laboratories focused on preventive  medicine, environmental health, and similar matters. (f)  Definitions.  In this section:  (1) The term "career appointee" has the meaning given that  term in section 3132(a)(4) of title 5.  (2) The term "Defense Health Agency" means the Defense  Agency established pursuant to Department of  Defense  Directive 5136.13, or such successor Defense Agency.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Lori Atkinson, Assistant Director;  Alexandra Gonzalez; Rebecca Guerrero; Mae Jones; Mary Jo LaCasse;  Kirsten Leikem; Steven Putansu; and Sarah Veale made key  contributions to this report.