The Defense Health Agency Stands Up

How could we find significant cost savings? How do we reduce the duplication? How do we reduce the variation? That’s what our models looked at. How do you create a dispute resolution process with clear decision authority and clear accountability as you move toward joint solutions where they make sense?

One of the other issues that we had was: Is it doable? Is whatever we propose doable in the environments and acceptable not only to the services, but to the Office of the Secretary of Defense? And so all those came into play as we proposed what then became the Defense Health Agency proposal for a new wave of doing governance.

When we built the Defense Health Agency, we looked at the 10 shared services… where we could see savings either in efficiencies or quality or dollars. Those 10 shared services were facilities, medical logistics, health information and technology, TRICARE, pharmacy operations, budget and resource management, contracting, research, development, acquisition, medical education and training, and public health.… We felt that there was opportunity there.

Now, as we moved forward, and people need to remember this, the Defense Health Agency and the future governance model was not created in a vacuum. It was created by the services’ participation—Army, Navy, and Air Force medicine. Each of those shared services had subject matter experts from all 3 services participating in shaping the future joint force solutions, where it makes sense. That is key. It wasn’t a bunch of headquarters officials or OSD or joint staff sitting in a dark room creating this in a vacuum and then bringing it out and saying, “Hey, this is what we’re going to do.” It was transparent, it was open, and then it actually ended up running through what we would then create the new governance system as we moved forward.

Each of those shared services underwent, what I call, a rigorous—and I’m going to repeat that word, rigorous—reproducible and transparent business case analysis. And after that, then you say, “Hey is there opportunity here?” Then part 2 was a rigorous, transparent, and reproducible business process re-engineering. And so we went through each of those shared services. And it just so happened that there was opportunity. In other words, there was opportunity for increased efficiencies, increased effectiveness, dollar savings, or resource savings, some of the above or all the above in all of these 10 shared services.

We put $3.5 billion on the table as potential shared services cost savings for the fiscal years [FY] 2015 to 2019. That’s not an insignificant number. Now folks say, “That’s a lot of money to put on the table. Are you going to deliver?” And the answer is yes, we will deliver. I’m going to be honest with you, they took that right off the topline of our Defense Health budget right off the bat, so we had no choice but to deliver now. But I’m confident that we will because of the very rigorous work and dedication of those who did that.

If you want to look at an early win here: In March of 2013 is when DEPSECDEF said, “Go forth and stand up the Defense Health Agency.” And then we set a target date of 1 October 2013 to be at initial operating capability when we stood up the Defense Health Agency. So that first year in FY14, the Defense Health Agency achieved—and this was not included in the FY15 to FY19 [budget]—achieved cost savings of $350 million….

Standing up 1 October 2013 in the middle of sequestration, I told my staff, “If there is any money you need for initial investment, you’re going to have to either find it yourself or make it.” And they did.… We paid our own way that first year, and I’m not so sure there are a lot of organizations out there that can say they paid their own way the first year. But I was very proud of our staff, especially when you create an organization that is supposed to lean out.

Remember, our staff in the Defense Health Agency is made of the men and women, the subject matter experts, the extreme talent that comes from the Army, Navy, and the Air Force medical services. When I talk about the Defense Health Agency, they’re not Defense Health Agency people. These are people that are in the Defense Health Agency that are providing services back and capability back to Army, Navy, Air Force, and Marine medicine. It is truly a team effort and a collaborative effort.