Association for Public Policy Analysis & Management

Rising health care costs directly impact the budget of the Department of Defense (DoD). Unlike other areas of defense procurement, DoD purchases almost all of its health care infrastructure from commercial vendors. For example, laboratory equipment and radiological equipment used in civilian hospitals are the same brands and types of equipment used in Military Treatment Facilities (MTFs). This equivalency extends to staff as well. Civilian and contract employees working in MTFs are trained in the same ways and demand salaries equivalent to those working in the civilian medical system. Medical supplies and pharmaceuticals are purchased from the same vendors who supply every other hospital and clinic in the United States. There are some items developed specifically for medics and corpsmen working with our front-line troops but these particular pieces of equipment and supplies are relatively inexpensive and represent a small fraction of the overall DoD health care budget. For this reason, factors that cause increases in commercial sector medical spending have a direct and dramatic impact on the Defense budget. 

Using the initiative known as the Quadruple Aim, this study examines the impact of medical care outsourcing on total cost of care for the DoD.  A substantial amount of care provided to DoD beneficiaries occurs within or near large metropolitan areas in the United States that each maintain robust civilian medical care systems. With this in mind, there may exist opportunities for outsourcing care resulting in the ability to either close existing MTFs and/or move components of their care to civilian facilities if a comparison of costs indicates this strategy efficacious.

To determine the possible effectiveness of the outsourcing alternative, we examine medical imaging costs within the continental United States.  Medical imaging procedures will be examined because of their relatively high cost.  This research explores imaging procedures structured into five categories for analyses: Computed Tomography (CT), Magnetic Resonance Imaging (MRI), Nuclear Medicine (NUC), Positron Emission Tomography (PET), and Ultrasound (ULTRA). The regions that will be analyzed are based on six Enhanced Multi-Service Markets (eMSM) selected by the Defense Health Agency.  Each eMSM encompasses multiple military facilities from more than one branch of service which are collocated with strong civilian network capabilities. For this reason, the eMSM regions provide a ready-made method of grouping facilities for comparison both with civilian treatment facilities and with each other.

Our findings indicate that the DoD should consider internal and external partnering efforts to develop methods to ensure imaging facilities are located in areas where potential users can easily access them. We find that to reduce the average cost per test, each piece of machinery and each staff person working in radiology should be used to the maximum extent possible.  This makes sense intuitively without examining the data.  As imaging services involve a fairly high proportion of fixed rather than variable costs (large, expensive pieces of equipment and expensive staff who must be in the hospital regardless of how busy they are) – the more volume the better from a cost standpoint.