Five Actions to Improve Military Hospital Performance

The Military Health System (MHS) is a global, comprehensive, integrated system that includes combat medical services, health readiness, and a health care delivery system amongst many other functions. As one of the largest health care systems in the U.S, with total spending of more than $50 billion per year, the MHS includes both a direct care component, composed of DoD-operated and staffed military treatment facilities (MTFs), and a purchased care component operated through TRICARE regional contracts. Its fundamental mission providing medical support to military operations, is distinctly unique from any other health system in the country.

Challenges facing DoD’s Direct Care Mission

The rising costs of healthcare in DoD and the high cost of the direct care system have placed a spotlight on the management of its Military Treatment Facilities (MTFs). This, combined with concerns about adequacy in supporting the readiness mission and quality led Congress to direct a major overhaul of the direct care system in the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 signed into law December 23, 2016.

The direct care system’s central role in both the readiness and beneficiary missions means that ensuring its effectiveness and efficiency is vital for mission accomplishment. It provides an “operating base” for the military medical community and provides flexibility for rapidly transitioning and deploying personnel. The direct care system faces growing challenges that hinder its effectiveness in delivering on its mission—its utility to readiness and its high cost.  Dr. John Whitley’s, just released IBM Center report, "Five Actions to Improve Military Hospital Performance" explores these challenges and offers five actions DoD leadership can take to improve the performance of its hospitals.

Five Actions to Improve Military Hospital Performance

This report is as timely as it is as direct in its prescription for improving the performance of MTFs. Whitley presents background information on the challenges of the direct system to provide context for the modernization reforms directed by the NDAA. He describes specific actions DoD can take to improve performance and reduce costs in MTFs:

1. Provide Clear Roles and Missions. The bottom line is that maintaining the readiness of the military medical force and operating an MTF system for beneficiary healthcare are two different missions. Effective and efficient management of military hospitals requires them to have a clearly defined mission and for their leaders to have this mission clearly communicated to them. Currently they are supposed to provide clinical workload for readiness but fail to do so and instead, practically speaking, are focused almost exclusively on providing beneficiary healthcare. To improve the direct care system, DoD should end this confusion over missions by clearly articulating why MTFs are being maintained and what they are to be managed to produce.

2. Financial Management Reform. The lack of transparency in the funding of the MHS is a root cause of many of its challenges today. Funding for most of the direct care system is provided through the DHP budgetary account. Within the MHS, the Defense Health Program (DHP) appropriation provides almost all of the funding for the beneficiary mission and a portion of the funding for the readiness mission in a single, undifferentiated amount. This distortion of decision making trade-offs is compounded by the lack of visibility and transparency available to the Service leadership, Office of the Secretary of Defense (OSD) and Congress. This reduces incentives to manage healthcare. Funding large DoD support missions that approximate commercial activities with direct appropriation for their inputs rather than on a reimbursable basis for outputs produced is a funding mechanism long ago abandoned in most other large support areas, e.g., logistics, financial services and information services. Military hospitals, however, still receive funding for inputs consumed instead of outputs they produce.

3. Data Driven Management Reform. A significant implication of not having clearly defined roles and missions combined with comingled non-transparent funding is that there has been little emphasis on data driven management within the MHS. This is particularly striking given the enormous amount of data generated by MHS operations, e .g ., detailed healthcare encounter and procedure records numbering in the hundreds of millions. These are difficult questions for any medical system, public or private, to answer, but civilian medical systems have the disciplining force of competition—if a system fails to perform, the patients go elsewhere—and the requirement to remain economically viable. For a public system spending over $50 billion per year of taxpayer funding with the lives of its service members in combat at stake, implementing data driven management is an important action to undertake.

4. Leadership and Operational Management Reform. Organizing and operating MTFs like military units when the majority of the daily operations are the provision of beneficiary healthcare with little difference from civilian hospitals is inefficient. A simple incremental step that could be taken as part of TRICARE reform is directing that a group of MTFs be placed under civilian management (e.g., as government owned, contractor operated (GOCO) facilities) on a trial basis. One limited example of professional management being used in the management of the direct care system already is two outpatient clinics in the national capital region, and by most accounts this is considered very successful (this is discussed in more detail in the final action below). Military hospitals should be led and operated by business professionals. Competition is the ultimate disciplining force in markets, and lack of competition is a primary driver of inefficiency. Ensuring that the MTFs face competition for beneficiaries and care delivery is the most important structural reform for focusing them on improvement.

5. Public-Private Partnerships. Although there are individual examples of outreach at the local level, as a whole the direct system is an isolated system that is not integrated with its healthcare neighbors in the civilian marketplace. Greater integration with civilian healthcare is necessary to improve direct care performance and is specifically directed by section 706 of the NDAA. Public-private partnerships can be implemented in a wide range of ways across the direct care system. A recently released report from the Institute for Defense Analyses provides detailed examples of how these partnerships can be implemented and the benefits that can be achieved.

Many of the recommended actions have been implemented on limited scales (or in other mission areas). Dr. Whitley’s research draws lessons learned from this modernization discussion that can be applied across government operated healthcare delivery systems.

None of these reforms are surprising or new. All have been debated in Congress and most are explicitly directed and authorized in legislation. DoD has long been a leader in the use of revolving funds and data driven management, and has experience with public-private partnerships in healthcare delivery. Modernizing the direct care system is good for national security, military service members and the taxpayer—and can even be done in a way to improve civilian trauma care across the country.