Pentagon Expects to Save $2.4 Billion by Reforming Military Health Care

Russell Shively/

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Use of common IT systems could yield $672 million over six years, report says.

The Defense Department expects to save $2.4 billion over the next six years by consolidating functions previously performed by the three services and the Tricare Management Activity under a new Defense Health Agency, which will begin operation Oct. 1.

DHA, with a staff of 1,039 and headed by Air Force Lt. Gen. Douglas Robb , will achieve these savings by providing common shared services for the TRICARE Health Plan, information technology, medical logistics and facilities management, according to a report, titled “Plan for Reform of the Administration of the Military Health System,” sent to the chairmen of the Senate and House Appropriations and Armed Services Committees on June 27.

Defense expects to achieve its biggest savings from consolidation -- $787 million over six years -- through central management of the TRICARE plan and by eliminating “expensive walk-in service centers” at the 56 hospitals operated by the Army, Navy and Air Force.

The centers are to be replaced with toll-free call centers and Internet resources, which are estimated to be 80 percent less expensive per encounter than the walk-in centers.

The Pentagon also expects to see $672 million in savings through consolidation of all IT services, including management, infrastructure and applications for 230,000 Military Health System users under the new Defense Health Agency.

“Infrastructure will be consolidated and brought under the management of the DHA in a stepwise fashion that minimizes mission risk and disruption of service to end users. Applications will be consolidated and transitioned on a product-line-by-product-line basis,” the plan said.

The consolidated IT infrastructure will include network operations, communications and messaging, end user support, identity management, information assurance, testing and evaluation, and engineering services.

Defense anticipates saving $353 million from enterprise level contracts and standard supplies for its medical logistics systems, which currently spends $2.3 billion a year on supplies including, such as gauze tape, operating room gowns, knee braces, syringes, sponges and blood collection tubes.

In order to achieve these savings, DHA needs to develop a standard product catalog and upgrade its medical logistics IT systems to enable real-time reporting and reduce off-catalog purchases.

MHS facilities, which besides hospitals include 364 medical clinics and 282 dental clinics, are valued at $33 billion. The plan calls for DHA to centrally manage this portfolio, including upgrades and new construction, for an expected savings of $590 million over six years.

Officials project that savings will accrue from shared design and construction oversight, common standards for operations and maintenance and enterprisewide energy management programs.

The report said the Pentagon also plans to decrease use of retail pharmacies for prescription refills by increasing reliance on mail order and military hospital pharmacies for refills, but it did not provide a timeline.

(Image via Russell Shively/