Integrating Department of Defense and Department of Veterans Affairs Purchased Care: Preliminary Feasibility Assessment

by Carrie M. Farmer, Terri Tanielian, Christine Buttorff, Phillip Carter, Samantha Cherney, Erin Lindsey Duffy, Susan D. Hosek, Lisa H. Jaycox, Ammarah Mahmud, Nicholas M. Pace, Lauren Skrabala, Christopher M. Whaley

This Article

RAND Health Quarterly, 2020; 9(1):7


The U.S. Department of Defense (DoD) and U.S. Department of Veterans Affairs (VA) health systems provide services through a mix of direct care, delivered at government facilities, and purchased care, provided through the private sector, mainly by community-based providers who have entered into contracts with third-party administrators (TPAs). In the interest of expanding DoD-VA resource sharing that may lead to greater efficiencies and cost savings, the DoD/VA Joint Executive Committee is exploring options to integrate DoD and VA's purchased care programs. This preliminary feasibility assessment examined how an integrated approach to purchasing care could affect access, quality, and costs for beneficiaries, DoD, and VA and identified general legislative, policy, and contractual challenges to implementing an integrated purchased care program. An integrated approach to purchasing care is feasible under current legal and regulatory authorities, but policy changes may be needed—and the practicality of such an approach depends on the contract and network design. For example, legal/regulatory changes in how contracts are established would be required to achieve any real savings to the government. There are also differences in the populations served by TRICARE (DoD health care) and VA, particularly in terms of age and geographic location. Implementation would be further complicated by contractual differences in the TPA contracts for VA and DoD as they relate to network standards, provider payments, network participation requirements, and reporting requirements and incentive structures. As a result, there are significant uncertainties with respect to increased efficiency or cost savings for the government.

For more information, see RAND RR-2762-DHA/VHA at

Full Text

The U.S. Department of Defense (DoD) and U.S. Department of Veterans Affairs (VA) operate large federal health systems serving distinct but sometimes overlapping populations of service members, veterans, and dependents. Both systems provide services through a mix of direct care, delivered at government-owned and -managed facilities, and purchased care, provided through the private sector, mainly by community-based providers who have entered into contracts with third-party administrators (TPAs). TPAs coordinate and administer reimbursements to network providers on behalf of DoD and VA for delivering health care services to eligible beneficiaries.

In the interest of expanding DoD-VA resource sharing to unlock greater efficiencies and cost savings, the DoD/VA Joint Executive Committee is exploring options to integrate DoD and VA's purchased care programs. DoD's Defense Health Agency (DHA) and VA's Veterans Health Administration (VHA) asked the RAND Corporation to conduct a preliminary feasibility assessment to determine how an integrated approach to purchasing care could affect access, quality, and costs for beneficiaries, DoD, and VA, as well as to identify general legislative, policy, or contractual challenges to implementing an integrated purchased care program.

Feasibility Assessment Scope and Methods

We examined whether the idea of an integrated approach to purchasing care was permissible under current legal and regulatory authority; feasible, given differences in how the two departments purchase care; and practical, given the operational missions of DoD and VA and the health care needs of the populations they serve. To address these questions, we explored the following factors that will have the greatest impact on feasibility:

  • how current DoD and VA purchased care programs operate and the characteristics and health care needs of the populations they serve
  • similarities and differences between DoD and VA purchased care contracts and how they compare to industry best practices
  • the potential benefits and risks of an integrated purchased care approach for patients, DoD, and VA in terms of access, quality, patient experience, and costs
  • legislative, policy, and operational opportunities and barriers.

Our assessment included a review of the published literature on private-sector and other government program practices for purchasing health care services. We also conducted interviews with DoD and VA officials who were responsible for overseeing the delivery of health care services and with representatives from TPAs and health benefits consulting firms, including individuals who have contracted with DoD or VA. We gathered additional feedback on potential barriers and facilitators to an integrated purchased care approach from representatives of military and veteran service organizations, as well as representatives from relevant congressional oversight committees. To help provide some historical context, we also spoke with individuals with expertise in the evolution of the TRICARE and VA purchased care programs.

Because there was not a shared understanding across stakeholders of what an integrated approach to purchasing care would look like, we assumed that such an approach would involve the two departments using a single contract mechanism to construct a shared network of health care providers who would serve the entire DoD and VA enrolled populations and that the new approach would involve some level of shared oversight by the two departments. We also assumed no changes to benefits (services offered/covered) or eligibility.

Overview of DoD and VA Health Care

Military Health System

DoD's Military Health System (MHS) provides care through the TRICARE program to 9.4 million eligible beneficiaries, including active-duty service members, reserve service members, retired military personnel, and their dependents. Services are delivered in military-owned treatment facilities or purchased from the private sector. In fiscal year (FY) 2017, the MHS provided direct care at 54 military hospitals and medical centers and 377 ambulatory clinics and employed more than 147,000 health care professionals, split between military and DoD civilian personnel (U.S. Department of Defense, 2015). For active-duty beneficiaries, DoD purchases care from the private sector only when necessary to supplement military treatment facility (MTF) capacity (for example, when active-duty MTF personnel are deployed and capacity may be diminished).

Most other beneficiaries are required to enroll in one of two TRICARE plan options to receive care from the civilian sector: TRICARE Prime or TRICARE Select. Additional plans cover selected populations, such as those living abroad, retired reserve-component members and their families, and beneficiaries who are also eligible for Medicare. TRICARE benefits and plans differ slightly based on beneficiary category, although the differences are largely in how beneficiaries access care and their level of cost sharing. Active-duty military personnel pay no out-of-pocket costs for their health care. Family members of active-duty personnel do not pay out-of-pocket costs unless they use out-of-network care without a referral. Other beneficiaries pay enrollment fees and copayments, depending on their plan type and point of service (in-network or out-of-network provider).

DoD contracts with TPAs (also referred to as managed care support contractors) to manage and administer purchased care for the TRICARE program. Under the current TPAs, there are more than 570,000 community-based providers in the TRICARE network (U.S. Department of Defense, 2015).

VA Health Care System

Through VHA, VA operates the largest integrated health care organization in the United States, with approximately 145 hospitals, more than 1,000 community-based outpatient clinics, 135 community living centers, 278 Vet Centers, and 48 domiciliaries (residential treatment programs) (U.S. Department of Veterans Affairs, 2017a). In 2017, approximately 6.26 million veterans used VHA health care, out of approximately 9.05 million VHA-enrolled veterans (U.S. Department of Veterans Affairs, 2017b) and nearly 20 million total veterans (Bagalman, 2014). In addition to providing health care for veterans, VHA also has education and research missions, providing training for physicians and other providers and developing new treatments for conditions common among veterans.

Modernizing VA health care has been a consistent theme throughout its history, and VA has gone through numerous transformations and reorganizations, many prompted by increases in the veteran population and the number and nature of benefits promised to service members.

Not all veterans are eligible for VA health care. Typically, veterans are eligible if they accumulate 24 consecutive months of active-duty service, separated under any condition other than dishonorable discharge, and have a health condition connected to their military service (U.S. Department of Veterans Affairs, 2016). However, there are some exceptions. For instance, some low-income veterans are eligible for VA care, as are some service members who have experienced military sexual trauma, even if they do not meet other VA eligibility requirements (U.S. Department of Veterans Affairs, 2016). In addition, certain veterans' dependents, caregivers, and survivors, as well as reservists who have served on active duty, are recognized as having veteran status. National Guard members activated in combat or a domestic emergency may also be eligible for VA benefits (Panangala, 2016; U.S. Department of Veterans Affairs, 2016).

VA health care is allocated based on the availability of resources (Panangala, 2016). Thus, eligibility is dependent on the department's budget. VA uses a “priority group” system to determine eligibility and resource allocation for groups of veterans. The priority group assignment is determined based on veterans' service-connected disabilities, income, service during a conflict, commendations, and other factors. Enrollees never pay for care for service-connected conditions, and copayments for non–service-connected conditions vary by priority group.

While VA has long purchased care from the private sector when it is unable to provide certain services through its medical facilities, the amount of VA purchased care has grown substantially in recent years. In FY 2014, VHA spent $6 billion on purchased care (Greenberg et al., 2015) and will spend an estimated $14.2 billion in FY 2019 (U.S. Department of Veterans Affairs, 2018).

VA currently purchases care through a complex array of programs, including individual contracts with local providers (known as traditional purchased care) and contracts with TPAs to purchase care for large geographic regions. The TPAs administer two purchased care programs: the Patient-Centered Community Care (PC3) program and the Veterans Choice program. PC3 and Veterans Choice were established to address access issues that some veterans faced due to the unavailability of care from VA, veterans' geographic distance from a VA facility, or long wait times for an appointment. The VA Maintaining Systems and Strengthening Integrated Outside Networks (MISSION) Act, signed into law on June 6, 2018, consolidated these programs into one and created new authority for individual provider contracts, known as Veterans Care Agreements.

Patient Populations Served

A large proportion of the VA enrollee population is over age 65 (48 percent), whereas the TRICARE beneficiary population eligible to access the network is entirely under age 65. On the other end of the age range, there are no VA enrollees under age 18, while children make up 21 percent of the TRICARE beneficiary population. These significant age differences are important when considering the requirements of a joint purchased care contract, which would need to ensure the availability of care for the combined population of TRICARE beneficiaries and VA enrollees.

There are other differences in the two populations—including where they live (urban/rural) and their health care needs—that are critical to understand because these factors affect how a provider network under a joint purchased care contract would be designed and managed.

Roles of TPAs in DoD and VA

TPAs in the private sector generally take on a variety of administrative functions for employer-based health care plans. At a minimum, these functions include developing and maintaining provider networks and paying claims. TPAs can take on additional roles, such as developing benefit designs (which include the services covered and the associated cost sharing) and population health or utilization management activities.

The TPAs for TRICARE and VA currently have different roles because the nature of the types of care purchased differs greatly between the two departments. VA retains primary responsibility for patient care, referring patients to purchased care only for specific episodes of care, and, thus, almost all primary care is provided by VA providers in VA facilities. In contrast, TRICARE TPAs manage all of some TRICARE beneficiaries' care (e.g., for those enrolled in TRICARE Select), so primary care is provided through the TRICARE network rather than in MTFs. VA currently maintains more control over claims adjudication, while TRICARE requires that the TPAs take on this responsibility.

We examined differences in purchased care use between DoD and VA across nine types of care (inpatient, surgery, emergency care, primary care, physical therapies, oncology, obstetrics/gynecology, cardiology, and mental health care) and described each care type as a proportion of all purchased care visits or authorizations. Primary care makes up a large proportion (35 percent) of all purchased care visits for TRICARE but a very small proportion (3 percent) of VA purchased care authorizations.

Policy Implications, Conclusions, and Recommendations

Our review of the existing legal and regulatory authorities for DoD and VA indicated that an integrated purchased care approach (including a joint contract) would be legally permissible—with changes to existing authorities. Under current authorities and appropriations, each department could likely purchase care for its beneficiaries by adding the other department or its providers to its current contracts as subcontractors. Each department can also use its current appropriations to pay for its beneficiaries' care, if purchased through the programs described in those appropriations. However, notwithstanding the resource-sharing authorities, DoD and VA would likely need new statutory authority for a joint, integrated contract and would also likely need different appropriations language to purchase care through such a contract.

Over the past several years, there have been significant shifts in how both DoD and VA furnish health care, and both departments have been subject to congressionally mandated changes in how they manage and furnish health care. At the same time, the U.S. health care system has undergone changes that affect DoD and VA. Any decisions must consider how this evolving policy context will affect the feasibility and effectiveness of an integrated purchased care approach. For both departments, adapting to these policy changes has taken time and resources, and additional changes could disrupt ongoing efforts to implement the policy changes that are under way. Looking forward, both DoD and VA will need to prepare for uncertainty in demand for care that could result from changes to eligibility criteria or future combat operations. There is also uncertainty about the impact on patient experiences. Although our analysis confirmed that an integrated approach to purchasing care could expand the number of providers available to both departments, we were unable to determine whether this expansion would fill gaps for certain types of purchased care. Furthermore, without information about the capacity of each provider and the potential demand for their services under an integrated purchased care approach, it is difficult to assess the impact on patient access.

Our examination of costs also yielded uncertainty, as cost savings would depend on the extent to which DoD and VA harmonize their operational processes, including provider contracting, claims processing, reporting, and customer service functions. While some stakeholders believed that the government might be able to achieve greater cost-efficiency by negotiating lower payments to providers with an increased volume of services, both departments are already paying near Medicare rates to their contracted providers. To negotiate lower reimbursement rates, legislative change could be necessary—and doing so might have a negative impact on provider willingness to participate in a joint DoD/VA network. There could be some cost savings associated with integrating contracting functions and processes, but legal/regulatory changes in how those contracts are established would be required to achieve any real savings to the government (as opposed to merely shifting costs from one department to the other).


We offer two recommendations that are primarily aimed at reducing the uncertainty of the impact associated with an integrated purchased care approach. These recommendations should be considered in parallel but would likely best be implemented in sequence because the results of additional analysis will inform a demonstration or pilot and provide the most concrete evidence of impact on the dimensions of interest.

Conduct Additional Analyses

To gain a more robust understanding of whether merging provider networks would help improve provider access, it is necessary to identify similarities and differences in demand for purchased care using individual-level data, as well as data on specific regions and patient populations. It will also be necessary to determine whether providers perceive barriers to participating as the network of one department versus the other to understand whether providers would want to join this joint network. Further analyses on merging contracting functions could also explore specific staffing capabilities and needs across DoD and VA, as well as various options for joint oversight, their advantages and disadvantages, and their costs.

Design, Implement, and Evaluate a Pilot or Demonstration Project

Establishing an integrated purchased care program would take several years, but a series of pilots or demonstrations, perhaps focused on a specific type of service, could help clarify how integration might affect access, costs, and quality of care and pave the way to full integration later on. Prior experiences with resource sharing between DoD and VA offer potential insights for these demonstrations.


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This research was jointly sponsored by the Defense Health Agency and VHA and was conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute and the Payment, Cost, and Coverage Program in RAND Health Care.

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