Purchased Care Integration – Feasibility Assessment of DoD-VA

The U.S. Department of Defense (DoD) and Veterans Affairs (VA) health systems are responsible for providing health care to more than 9 million beneficiaries, with some overlap in their populations.

Both systems provide services through a combination of direct care, delivered in government-owned and operated facilities, and purchased care, delivered by the private sector, primarily community-based providers under contract with third-party administrators. TPAs coordinate and administer reimbursements to in-network providers, who are paid on behalf of the DoD and VA for providing health care services to eligible beneficiaries.

To inform policymakers on whether sharing resources between the DoD and VA could increase efficiency and cost savings, RAND researchers conducted a preliminary feasibility study to examine how an integrated approach to health care procurement could affect the availability, quality, and cost of beneficiaries, the DoD, and the VA. The study also identified common legislative, policy, and contractual challenges associated with implementing an integrated care acquisition program.

Determine the feasibility of an integrated care acquisition approach

The study was based on a literature review of private sector and government practices in purchased care programs, an analysis of DoD and VA data on the use of purchased care and provider networks, and interviews with DoD and VA officials, TPAs, health care consulting firms, military and veterans service organizations, and congressional oversight committee staff, as well as individuals with experience in developing DoD and VA purchased care programs.

Because stakeholders disagreed on what an integrated approach to health care procurement would look like, the study assumed that it would include a unified contracting mechanism between the two departments to create a common network of health care providers serving the entire military and veteran population, with shared oversight by the two departments.

Although future changes in the size of the covered population or in the conditions of access to health care services may affect how the departments balance the provision of health care services through their direct and purchased health care programs, the study assumed that no changes would be made to the benefits (services provided or covered) or conditions of access.

The feasibility of this approach is likely to be influenced by a number of factors:

  • The operation of existing health care programs purchased by DOD and VA and the characteristics and health care needs of the populations they serve.
  • The similarities and differences between the DOD and VA purchased services contracts and how they compare to industry best practices.
  • The potential benefits and risks of purchased integrated care for patients, the military, and the VA in terms of access, quality, patient experience, and cost.
  • Legal, policy, and operational opportunities and barriers.

Key Findings

  • An integrated approach to health care acquisition for the military and VA would be legally authorized by existing mandates, but the appropriations language would need to be modified.
    In recent years, there have been significant changes in the management of health care by the
  • Department of Defense and the Department of Veterans Affairs, as well as new policies affecting the U.S. health care system in general. Any decision must consider how this changing policy environment will affect the feasibility and effectiveness of purchased integrated care.
  • The benefits of an integrated care purchasing approach in terms of patient experience, provider access, cost reduction, and operational efficiency are uncertain but may be limited.

Current approaches

The defense health system provides care through TRICARE to active duty service members, reservists, retirees and their dependents. Veterans Health Services serves veterans and, in some cases, their dependents, caregivers, and dependents through the Veterans Health Care Administration.

There are several differences in how VA care programs and VA-purchased care programs operate. For active duty beneficiaries who do not pay out-of-pocket, DOD purchases care from the private sector only when necessary to supplement the capacity of military treatment facilities. For other beneficiaries, TRICARE benefits and plans differ in how beneficiaries access care and their cost sharing.

For example, dependents of active duty service members pay no cost unless they use out-of-network services without a referral. Other beneficiaries pay premiums and co-payments that depend on the type of plan and the location of service (in-network or out-of-network provider).

Health care services for veterans are allocated based on availability, and eligibility depends on the department’s budget and the veteran’s “priority group,” which takes into account service-connected disabilities (which do not impose costs on veterans), income, conflict service, referrals and other factors. VA provides care through a number of complex programs, including individual contracts with providers and contracts with TPAs to provide care in large geographic areas.

TPAs also have a variety of roles. For example, VA TPAs manage only a small portion of a veteran’s overall health care, typically a single episode of care, which limits their ability to anticipate provider demand, manage population health, and implement quality improvement measures. VA PTAs also do not oversee claims processing.

Populations covered by the military and veterans’ health care systems

In general, however, there are significant differences between the populations served, particularly in terms of age. Nearly half of the population covered by VA is over 65, while the number of beneficiaries covered by TRICARE is entirely under 65.

At the other end of the age spectrum, there are no VA members under the age of 18, while 21 percent of TRICARE beneficiaries are children. These differences are important when considering the requirements of a jointly purchased health care contract to ensure access to specialty care for a common beneficiary population.

The RAND study examined the use of DoD and VA purchased health care services for nine health care services (hospitalization, surgery, emergency department, primary care, physical therapy, oncology, obstetrics/gynecology, cardiology, and mental health services). 

Legal and regulatory environment for integration of acquired care

In recent years, the Department of Defense and the Veterans Administration have made changes to the management and delivery of health care, consistent with congressional requirements. At the same time, there have been changes in the U.S. health care system that also affect defense and veterans’ services. Any decision must consider how this changing policy environment affects the viability and effectiveness of integrated managed care.

As summarized in Table 1, the two departments’ authorizations and appropriations generally allow them to purchase care for their beneficiaries with varying degrees of restriction. These mandates and appropriations also allow for some sharing of resources.

However, the regulations refer to specific programs of the departments. DOD and the Veterans Administration would likely need new statutory authority to enter into a joint integrated contract, and they would also need different appropriations language to purchase care through such a contract.

Under current authority and appropriations, DOD and VA can engage in some level of resource sharing, but cannot enter into a joint care purchase contract


Can DoD or the VA use another contract (Veterans Choice or TRICARE) to purchase care for their beneficiaries?


Yes, provided they have the authority to purchase care for their beneficiaries, funds available for that care, and governmental authority to purchase goods or services through other agencies. However, the Department of Defense and the Veterans Administration should be strictly monitored to ensure that their appropriations go only to the beneficiaries and are properly reimbursed.


Does the current resource sharing law allow for joint procurement?


Possibly, although congressional staff expressed the view that these authorizations were for limited pilot programs and that members of Congress would likely be skeptical of large-scale resource sharing without new authorizations.


Do current appropriations support a joint DOD/Vet agreement?


No, because the current appropriations language explicitly mentions the contract programs used by DOD and VA. The status of future appropriations should be adjusted to reflect the new joint contracting structure and give them the ability to procure maintenance through other means than their current contracts.

Potential effect on the patient experience

While the analysis confirmed that an integrated approach to healthcare purchasing could increase the number of providers available to both departments, it was not possible to determine whether such an expansion would fill gaps in certain types of healthcare services purchased.

Several interviewees were concerned that consolidation of purchased care programs would create artificial competition between TRICARE and VA beneficiaries for use of the same providers. However, without information on the capacity of each provider and the potential demand for these services under an integrated purchased care program, it is difficult to assess the impact such an approach would have on patient access.

Potential effect on costs

RAND’s cost analysis also revealed uncertainty, as savings will depend on the extent to which DoD and VA streamline their business processes, including provider contracts, claims processing, reporting, and customer service functions.

Although some stakeholders have argued that the government could get better value by negotiating lower payments for providers with higher volumes of services, both departments already make payments to their contractors that are nearly equivalent to Medicare prices.

While integrating contracting functions and processes may result in some savings, legislative or regulatory changes in the way contracts are awarded will be needed to achieve real savings for the government (rather than simply shifting costs from one department to another).


Based on the results of the study, two recommendations have been made, the primary objective of which is to reduce uncertainty about the impact of integrated care purchasing. These recommendations should be considered in parallel, but would probably be best implemented sequentially, as the results of further analysis will form the basis for a demonstration or pilot project.

Continuing the Analysis

Studies examining variation in demand for purchased health care services across specific geographic areas, patient groups, and individuals would provide additional information on whether linking provider networks would improve access to providers and care.

It is also necessary to determine whether providers face barriers to participation in one network of wards versus another network of wards in order to understand whether providers would want to join this shared network. Further analysis of consolidation of acquisition functions could also examine the specific capabilities and staffing needs of the DOD and VA, as well as the different options for implementing joint oversight, their advantages and disadvantages, and their costs.

Design, implement, and evaluate a example project

Implementing an integrated purchasing care program would take several years, but a series of pilot or demonstration projects, perhaps focused on a specific type of service, would help determine how integration might affect access, cost, and quality of care, and would set the stage for full integration at a later stage. Past experiences with resource sharing between the Department of Defense and the Veterans Administration offer possible ideas for such demonstrations.

Departments could work with Congress to define the parameters of one or more pilot projects to integrate the various dimensions of acquired care across the defense and veterans services.

However, stakeholders suggested that a specific region or geographic market be selected, or a specific type of health care provider or health care delivery system identified, to explore how integration might affect access, cost, and quality of care, and that the pilot should consider, test, and evaluate multiple options and levels of integration.

To assist in the design of such a project the various elements of the modular integrated care model for purchasing might be considered. Each step would require additional effort in the form of legal/regulatory, operational, and administrative changes. For example, as a first step, DOD and VA could consider simple sharing of provider lists, asking their contracting partners to share information on relevant providers, or facilitating expedited contracting by both departments.

As a second step, the two departments would work together to consolidate or draft their purchased care network requirements into a single contracting mechanism that describes two different sets of rules, functions, and roles for two separate programs. Future work would also focus on greater integration. All functions of the two health systems would be integrated at the highest level.


Based on RAND’s review of current statutory and regulatory mandates, integrated purchased care (including a common contract and a common provider list) would be legally permissible; however, some changes would need to be made to current mandates, including how current appropriations refer to purchased care programs.

The review of PPAs and interviews with stakeholders about how entities use their PPAs revealed significant concerns about the feasibility of an integrated PPA. As more than half of the interviewees stated, “the devil is in the details.” Without significant changes in the relationship between each department and its contracting partners (especially in the case of VA), operational effectiveness would be limited.

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