Healthcare Business News

Targeting Tricare

Health plan for military personnel and their families becomes vulnerable in fight over SGR, efforts to curb federal spending

By Rich Daly
Posted: November 21, 2011 - 12:01 am ET

The rising cost of Tricare, the military's healthcare coverage program, has brought increasing scrutiny from lawmakers and an administration intent on reducing the federal budget deficit. However, some provider and beneficiary advocates worry that efforts to control the program's spending are undermining a separate push to expand access to care.

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The nine types of managed-care plans in Tricare—which was implemented nationwide in 1997—cover nearly 10 million uniformed service members, retirees and their dependents, and pay for care through both military healthcare facilities and civilian providers.

Those private providers have seen a range of cost-cutting moves directed at them in recent years, even as Tricare has simultaneously pushed to increase the number of civilian providers who will treat its beneficiaries. And the tension between those separate initiatives is increasing as the program's overall spending draws fire as a driver of rising federal healthcare spending.

Former Defense Secretary Robert Gates sounded the loudest recent alarm about the costs of Tricare when he described its current spending as “simply unsustainable” in February testimony before the House Armed Services Committee. Changes were needed, he said, to control spending in military healthcare, which had grown to a projected $52.5 billion in the current fiscal year from $19 billion in fiscal 2001.

The ballooning costs have produced a range of spending reduction proposals, many of which have focused on increasing the relatively low cost-sharing for Tricare beneficiaries compared with other federal health insurance programs. For example, the $3 trillion deficit-reduction plan President Barack Obama presented in September would increase pharmacy cost-sharing by replacing fixed-dollar copayments with percentage-based charges for the families of active-duty members and retirees. Additionally, it would establish first-ever annual fees in the Tricare program geared toward retired beneficiaries also eligible for Medicare.

But two looming cuts would focus on lowering the program's spending on providers. The first is a 27.4% cut in the physician pay rate known as the sustainable growth-rate formula, which is used by both Medicare and Tricare; the cut is required under a federal cost-control funding formula that dates from 1997 and scheduled to go into effect at the beginning of 2012. The second possible cut is a deficit-reduction plan that would slice Medicare and Tricare provider payments starting in 2013 if a $1.2 trillion deficit reduction package is not approved by Congress by Dec. 23.

Both types of cuts would have a larger impact on Tricare providers, according to patient advocates. That is because Tricare generally treats Medicare rates as a ceiling, while paying many individual service categories at lower rates. Conversely, Tricare officials have emphasized that there are some other categories of services for which the program pays more than Medicare to some providers in certain regions.

Steve Strobridge, a retired Air Force colonel and director of government relations for the Military Officers Association of America, says the provider cuts that most concern his organization come under the planned 27.4% rate reduction. “That will dramatically affect their willingness to participate,” he says about private physicians.

What's next for the SGR?

A young Tricare patient, one of the many dependents of active military personnel covered in the program, receives care at the new Walter Reed National Military Medical Center in Bethesda, Md.
A young Tricare patient, one of the many dependents of active military personnel covered in the program, receives care at the new Walter Reed National Military Medical Center in Bethesda, Md.
Photo credit: Walter Reed National Military Medical Center
The looming cut to the SGR is highly unlikely to occur, according to many members of Congress. However, it remains unclear whether legislators will agree to a permanent fix to the costly problem or simply approve another temporary patch that freezes the rates or provides a token increase.

Physicians' advocates have maintained that continuing the pattern of recent years in which Congress temporarily waives the physician pay cuts after months of brinkmanship, or even brief implementations of the cuts, is causing hardships for providers and leading some to reconsider their participation in Tricare and Medicare.

“Access to healthcare for military families is in serious jeopardy,” Dr. Robert Wah, chairman of the American Medical Association, said in a recent written statement about the impact of the looming SGR cut.

Veterans and provider advocates also are concerned about cuts to Tricare providers that would come through the so-called congressional supercommittee. If that panel fails to reach bipartisan agreement on $1.2 trillion in deficit reductions over 10 years—a prospect that appears increasingly likely, according to congressional sources—then cuts of that size will automatically come from the military budget and from federal healthcare programs. Any cuts to Medicare—whether automatic or part of a negotiated deal—also would affect Tricare providers, advocates say, because they would come through reduced provider payment rates, which both programs share.

The American Hospital Association estimates that hospitals would absorb $43 billion in cuts just through Medicare but has not yet calculated possible Tricare impacts, says Roslyne Schulman, the AHA's director of policy development.

Such Tricare cuts could have a “cumulative effect” of financially undermining hospitals, she says, when other possible and planned cuts occur, such as those coming under the Patient Protection and Affordable Care Act.

Among the coming Tricare provider cuts is a 2012 rate change for sole community hospitals, which is an administrative initiative that aims to comply with long-standing federal law requiring similarity in Medicare and Tricare provider payments. Tricare estimates the changes will save the program almost $400 million over five years by moving such payment rates closer to what Medicare pays. Similarly, the military recently began a similar phased-in change to its outpatient prospective payment system.

Dr. Jonathan Woodson, assistant defense secretary for health affairs and director of Tricare management activity, testified to the House Appropriations Defense Subcommittee in May that the department opted for a phased-in approach to those changes to reduce the fiscal impact on its civilian provider network.

“We recognize that adjustments to payment formulas will have an impact on the projected revenue streams of the hospitals covered under this rule change, and we are sensitive to revenue projections in planning for large capital outlays for construction and major medical equipment purchases,” Woodson said.

Such cuts come as Tricare is pushing hard to expand both its private provider network and the number of civilian providers who are willing to accept patients covered by the program. Access to such civilian providers has become increasingly important in recent years, according to Tricare patient advocates, because the large-scale personnel deployments to the wars in Iraq and Afghanistan have led to the overseas deployment of many of Tricare's military providers, as well.

The relatively few military Tricare providers not deployed then depend more heavily on private practitioners to assist in treating members of the military, retirees and their dependents in Tricare.

The Obama administration has launched several high-profile campaigns to recruit health providers into Tricare, especially mental-health clinicians. Additionally, several state leaders and provider groups have undertaken state-level campaigns to induce more providers to accept Tricare beneficiaries.

Push for private practitioners

The overall success of such recruitment efforts in the face of threatened and enacted cost-control efforts that focus on Tricare providers is unclear. This past summer, the program touted the success of individual campaigns in recently increasing the overall number of private healthcare providers serving Tricare enrollees. For example, the South Dakota State Medical Association was commended in the summer by Gov. Dennis Daugaard for its help in recruiting more physicians to provide care to Tricare enrollees.

However, the general number of private-sector providers in the national Tricare network (more than 325,000) and the number of providers accepting Tricare beneficiaries (over 1 million) have remained essentially unchanged since 2008, according to Tricare public statements. Program officials did not provide specific numbers for either year before deadline.

Advocacy groups differ on whether the number of private providers serving Tricare enrollees has increased or decreased in recent years, but they agree that severe shortages exist among some medical specialties in the program and in certain geographic areas.

“We're hearing from families about problems accessing, especially medical specialists,” says Barbara Cohoon, deputy director of government relations for the National Military Family Association.

The official Tricare provider counts may mask such shortages, according to patient advocates, because a growing number of reports indicate many providers listed as accepting its enrollees actually do not. For example, Shelley MacDermid Wadsworth, director of the Military Family Research Institute at Purdue University, and her colleagues published a study in March that found only 25% of the Indiana mental-health providers listed as Tricare providers were accepting new Tricare patients.

“The primary barrier to obtain care appears to be the accuracy of the Tricare provider list,” they wrote.

Additionally, when provider shortage areas are identified, Tricare has no publicly stated plan to address those shortages, Strobridge says.

Although Tricare's own private provider surveys have found that both enacted and threatened provider cuts are frequently the leading factors limiting civilian provider participation in the military insurance program, other factors also play a role, according to provider and Tricare enrollee advocates.

For example, some physicians who no longer accept patients under the plan decided to drop participation as a result of the complexities and delays in receiving reimbursement for care provided to Tricare enrollees, according to provider advocates. Additionally, the program is difficult for hospitals to participate in, Schulman says, because it frequently updates payment and coverage policies with little warning and no public-hearing process. Hospitals can be left scrambling when they discover the program no longer includes care covered by Medicare, such as psychiatric treatment.

“The concern is that big changes in policy can be made without any public review,” she says.

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