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The U.S. Department of Defense (DoD) has increasingly confronted financial, managerial, and operational challenges in sustaining health benefits for service members and their families: For example, medical costs are projected to increase to 12 percent of DoD's total budget in 2015, from a level of 8 percent in 2007. To address these challenges, DoD is working to transform business practices within the Military Health System. As part of this effort, DoD has considered setting targets for health care utilization in its military treatment facilities (MTFs) and rewarding or penalizing MTFs according to their performance. In this volume, the authors discuss the potential and limitations of using MTF utilization and costs as measures of MTF leaders' performance. Nicosia, Wynn, and Romley report the findings of (1) their qualitative review of performance assessment in the nonmilitary health care sector and (2) their quantitative analysis of how MTF utilization and cost metrics are limited by random variation in the data, and how MTF size and resource-intensive catastrophic cases affect this variation.

The research described in this report was sponsored by the Assistant Secretary of Defense for Health Affairs and conducted by the RAND Center for Military Health Policy Research, a joint project of RAND Health, and the Forces and Resources Policy Center of the RAND National Defense Research Institute. The latter is a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

This report is part of the RAND monograph series. RAND monographs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity.

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