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Washington, DC, Wednesday, March 9, 1988. The subcommittee met, pursuant to call, at 10:05 a.m., in room 2212, Rayburn House Office Building, Hon. Beverly B. Byron (chairman of the subcommittee) presiding.


Mrs. BYRON. Good morning.

Today, we are going to get down to the meat and potatoes of the subcommittee's focus on the past year, and that is the military medical care system. This is the tenth subcommittee medical care hearing during the 100th Congress; that must be some kind of a record. Medical care was also a primary topic during the personnel field hearings at Okinawa and also at Clark Air Force Base last November, and I can assure you that we got an earful from beneficiaries on the difficulty in obtaining medical care overseas.

This is a repeat performance for our witnesses today. Secretary Mayer and the three surgeons general have appeared before us 2 weeks ago on our wartime medical readiness hearings, and we welcome all of you again today.

A great deal has happened since our medical overview hearing at this time last year. The Department of Defense has recently signed contracts for the CHAMPUS reform initiative demonstration project in California and Hawaii and for the operational test and evaluation phase of the composite health care system acquisition. Several demonstration projects initiated by this committee, though not yet under way, are also in the pipeline.

There are lessons to be learned from all of this, and I believe it is vitally important that the CHAMPUS reform, the catchment area, the fiscal intermediary demonstration projects, PRIMUS and NAVCARE, and other initiatives are fully and carefully evaluated.

I commend to my colleagues' attention a recently published Congressional Budget Office report prepared at the subcommittee's requested entitled Reforming The Military Health Care System. It provides a useful framework for the evaluation process.

I got the idca last week that the subcommittee would want to focus more on the level of care currently provided in military hospitals in general and in naval hospitals specifically. Therefore, in the interest of conserving time, I have asked the Congressional Budget Office to submit a statement for the record for this morning's hearings, and we will have their oral testimony at a subsequent hearing.

[The prepared statement of Mr. Hale follows:]

Statement for the Record

Robert F. Hale
Assistant Director

National Security Division
Congressional Budget Office

before the
Subcommittee on Military Personnel and Compensation

Committee on Armed Services
U.S. House of Representatives

March 9, 1988


This statement is not available for public release until it is delivered at 10:00 a.m. (EST), Wed. nesday, March 9, 1988.

Madame Chairman, thank you for the opportunity to discuss the costs of the

military health care system.

As you know, the system has several key

objectives—it must be ready to meet the demands of war, and it must satisfy the medical needs of more than 9 million active and retired military

per sonnel and their dependents. The system must also meet these goals at a

reasonable cost, and I will focus on costs in my testimony.

Since 1979, the cost of all military medical activities has risen by

about 170 percent, roughly 40 percent faster than total U.S. spending for

health care.

The cost of the Civilian Health and Medical Program of the

Uniformed Services (CHAMPUS)--the military's separate insurance program

that helps pay for private medical care-has risen by 365 percent, from $485 million in 1979 to more than $2.3 billion today. Such cost growth, as well as

other problems with the military's health care system, have led to numerous

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My testimony, which draws from a report by the Congressional Budget

Office (CBO) to this committee in January (Reforming the Military Health

Care System), reviews three approaches to reform, two of which are slated

for testing: The CHAMPUS Reform Initiative (CRI), which will start this

August in California and Hawaii, and "catchment area management," which

will be phased in next year at several military installations.

A third

approach, less far-reaching, might be to build on several of the Defense Department's smaller initiatives (for example, PRIMUS outpatient clinics).

Each approach has the potential for savings, but each also carries a risk of

higher costs. For example, CBO estimates that a nationwide version of CRI could either save as much as $600 million or add as much as $1 billion to

annual CHAMPUS costs, depending on managerial efficiency and the

reactions of beneficiaries.


What lies behind escalation during the last few years in military health care

costs, particularly those for CHAMPUS? Two important causes--growing

numbers of military retirees and dependents, and high rates of medical

inflation generally-remain largely beyond the control of the Department of

Defense (DoD). Two others do not: comparatively heavy use of health care

by dependents and retirees, and, at the same time, inefficient use of

existing military hospitals.

Heavy Use of Care

On a per capita basis, nonactive beneficiaries visit physicians and are

admitted to hospitals more often than other civilians. For example, for

every thousand active-duty dependents living inside a military catchment

area-the region roughly 40 miles around a military hospital--the Defense

Department pays for almost 1,000 hospital days a year, compared with about

600 days for some civilian insurance plans. Moreover, per capita use varies

widely from one catchment area to the next, suggesting there could be some leeway in reducing admissions without jeopardizing health.

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