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2 History and Context Although unique in certain aspects, the Captain James A. Lovell Federal Health Care Center (FHCC) is the latest development in a long history of cooperation between the health care systems of the Department of Defense (DoD) and the Department of Veterans Affairs (VA). A review of this his- tory provides a better understanding of the drivers and goals of cooperative health care activities between the DoD and the VA and of the obstacles and constraints that joint activities have encountered that the Lovell FHCC model is expected to address. FEDERAL HEALTH CARE The U.S. government provides health care to several populations, pri- marily through the VA, the DoD, and the Departments of Health and Hu- man Services (Indian Health Service), Homeland Security (Coast Guard), and Justice (Bureau of Prisons). This report addresses only the health care systems of the DoD and the VA, although lessons learned and recommenda- tions in this report may well apply to joint service delivery efforts between and within the other agencies. Military Health System The Military Health System (MHS), which includes TRICARE, pro- vides health care services to 9.6 million people, including 1.5 million active duty servicemembers, 2.1 million active duty family members, 5.1 million military retirees and their dependents, and 1.0 million reservists and their 27

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28 LOVELL FEDERAL HEALTH CARE CENTER MERGER BOX 2-1 TRICARE Prime and Other TRICARE Programs TRICARE has a number of program options, depending on beneficiary cat- egory (e.g., active duty servicemember, active duty family member, military re- tiree, eligible retiree family member, survivor, qualifying former spouse, reserve members and family members, and retired reserve members and their families) and geographic location relative to military treatment facilities (MTFs) (TRICARE, 2012).* For purposes of this report, the important distinction is whether a TRICARE beneficiary (1) must enroll in TRICARE Prime at an MTF; (2) may enroll in TRI- CARE Prime at an MTF; and (3) may use an MTF on a space-available basis although not enrolled in TRICARE Prime. Must Enroll in TRICARE Prime. Active duty servicemembers within the catchment of an MTF (which is within a 40-mile radius of the MTF) must enroll in TRICARE Prime at the MTF and receive all health care at the MTF unless referred out by their primary care manager. Therefore, all enlisted recruits and students at Naval Station Great Lakes are enrolled in TRICARE Prime at the Captain James A. Lovell Federal Health Care Center, as are active duty staff members who live within a 40-mile radius. May Enroll in TRICARE Prime. Active duty family members, retirees in- eligible for Medicare and their family members, survivors, and qualifying for- mer spouses may enroll in TRICARE Prime rather than TRICARE Standard, TRICARE’s fee-for-service option. The incentive for enrolling in TRICARE Prime, similar to a managed care plan or health maintenance organization, rather than TRICARE Standard or other options, is lower out-of-pocket costs. Active duty family members.1 More than 83 percent of DoD health care beneficiaries used TRICARE services in fiscal year (FY) 2010. The MHS comprises 59 inpatient hospitals, 363 ambulatory care clin- ics, 281 dental clinics, and 255 veterinary facilities. It employs more than 139,000 people, including 32,000 officers, 54,000 enlisted personnel, and 53,000 civilians. The care is provided either by military hospitals, called military treat- ment facilities (MTFs), or by non-DoD providers under contract, called TRICARE network providers. Those who enroll with an MTF, through TRICARE Prime, pay an annual enrollment fee but do not have to pay deductibles or copayments. Those who go to other providers, through TRICARE Standard, must pay deductibles and copayments but may choose 1  Theinformation and quotes in this section come from the Department of Defense (DoD, 2011a,b), unless otherwise indicated.

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HISTORY AND CONTEXT 29 servicemembers, active duty family members, surviving children, and surviving spouses (the last for the first 3 years) pay no costs. Military retirees and their fam- ily members, qualifying former spouses, and surviving spouses (the last after 3 years) pay a modest annual enrollment fee ($260 for individuals, $520 for families in fiscal year 2012). May Use an MTF on a Space-Available Basis. DoD beneficiaries not en- rolled in TRICARE Prime may receive care at an MTF on a space-available basis. TRICARE Standard beneficiaries usually choose TRICARE Standard so they may use providers of their choice, but they must pay annual deductibles and copay- ments. However, they are not required to cost share if they receive services at an MTF. Retirees who become eligible for Medicare fall under the TRICARE for Life (TFL) option. TFL beneficiaries are not subject to deductibles or copayments but must take Medicare Part B, whereupon TRICARE becomes the secondary payer. If a Department of Veterans Affairs (VA) medical center treats a TFL beneficiary, it cannot be reimbursed because the VA is not authorized to bill Medicare. Priority for Care at an MTF 1. Active duty servicemembers 2. Active duty family members enrolled in TRICARE Prime 3. Retirees, their family members, and survivors enrolled in TRICARE Prime 4. Active duty family members not enrolled in TRICARE Prime 5. All other eligible persons (CRS, 2009) * SOURCE: See http://www.tricare.mil/tricaresmartfiles/Prod_856/TRICARE_Choices_ At_a_Glance_ Brochure.pdf (accessed September 14, 2012). their providers (if they are able to use an MTF on a space-available basis, they are not charged for a copayment) (see Box 2-1 for an explanation of TRICARE program options). Although the number of MHS enrollees has been increasing in recent years, enrollment at MTFs, although required for active duty servicemem- bers, has been trending down, from about 4.2 million in 2004 to about 4.0 million in 2010. Meanwhile, enrollment in TRICARE Standard has increased from about 1.0 million in 2004 to 1.7 million in 2010. Rising health care costs are a major concern. The budget has increased from $32 billion in FY 2004 to more than $49 billion in FY 2011, mostly due to the increase in average per capita costs ($3,500 a year in 2010, compared with $2,000 a year in 2002). While the use of inpatient and out- patient services at MTFs has changed little, the use of care purchased from network providers has been increasing substantially. The per capita costs of direct care are less on average than the costs of purchased care, which

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30 LOVELL FEDERAL HEALTH CARE CENTER MERGER provides an incentive for the MHS to attempt to increase the proportion of DoD beneficiaries who are enrolled in TRICARE Prime. According to Dr. Jonathan Woodson, the assistant secretary of defense for health affairs, eliminating purchased care would save the MHS more than $16 billion per year (Kime, 2012). The MHS faces an important obstacle in attracting beneficiaries to the direct care system of MTFs, however. • Patients at military treatment facilities report more difficulty get- ting timely care than those who use TRICARE network providers (DoD, 2010, p. 24). • Patients enrolled to TRICARE network providers report a higher satisfaction with (inpatient and outpatient) health care (DoD, 2010, p. 23). • On average, enrollees to military treatment facilities see their as- signed primary care manager less than half of the time (DoD, 2010, p. 23). • Patients report higher satisfaction with inpatient medical care at MTFs than at TRICARE network hospitals, but lower satisfac- tion with inpatient surgical and obstetric care at MTFs than at TRICARE network hospitals. The DoD has also been reducing the number of MTFs by closing small, less-efficient facilities. The number has decreased from 70 to 59 since 2004. These closures, the possibility of making the remaining MTFs more efficient by serving VA as well as DoD patients, and other cost trends provide an incentive for MHS facilities to seek cooperative arrangements with VA health care facilities. Another trend is the shrinking share of the MHS workforce accounted for by active duty members, down from 58 percent (70,000 of the total workforce of 120,000) in 2004 to 49 percent (68,000 of the total work- force of 140,000) in 2010. This decline, coupled with the fact that about 12,000 are deployed at any given time, also provides an incentive for MTFs to cooperate with the VA to achieve more stable staffing arrangements (VA personnel do not move as part of their job). Collaboration also serves to sharpen the clinical skills of military providers because the VA serves a patient population with a broader range of acute and chronic medical, surgical, and psychiatric conditions and a higher acuity level.

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HISTORY AND CONTEXT 31 Veterans Health Care System2 In 2012, the VA’s Veterans Health Administration (VHA) expects to have more than 8.7 million enrollees. Nearly 6.3 million patients will ac- tively use VA services for all or for a portion of their annual health care needs (VA, 2012). The VHA has more than 1,000 direct care sites, includ- ing 153 VA medical centers (VAMCs) that provide inpatient and outpatient services, 841 outpatient-only clinics, 133 long-term care facilities (called community living centers), 110 residential rehabilitation programs, and 300 counseling centers (VA, 2012). In FY 2010, the VHA experienced 680,000 inpatient admissions, 75.6 million outpatient visits, and 298,000 outpatient surgeries, at a cost of $47.5 billion. The workload projected for VA facili- ties in the FY 2011 budget was 87.0 million outpatient visits and 965,000 inpatient stays (U.S. House of Representatives, 2010, p. 38). As a large integrated health care system, the VA is challenged to provide a comprehensive, full continuum of health services to veterans geographi- cally dispersed across the United States, including in Alaska, Guam, Hawaii, and Puerto Rico. In addition, a large share of veterans (43 percent) lives in rural areas that have a shortage of public and private health care services. More than 1.8 million women have served in the U.S. military and are veterans. Today, women constitute more than 15 percent of active duty forces and 18 percent of the National Guard and reserve components, and they account for 20 percent of new military recruits. In the decade between FYs 2000 and 2010, the number of women veterans enrolled in the VA health care system as patients doubled from approximately 150,000 to more than 325,000. In FY 2010, 292,000 women received health care services from the VA. The VA projects that by the year 2020, women will constitute 10 percent of the overall veteran population and make up 9.5 percent of VHA patients. While women veterans are still a small minority of VHA patients, their rapidly increasing numbers and gender-specific health needs are creating challenges for the VA’s health system. VAMCs and MTFs have an incentive to combine health care services for active duty and vet- eran women to support a broader range of coordinated services and avoid referring patients to community health care providers for more specialized services such as mammography. The VHA employs more than 86,000 health care providers, about 10,000 fewer than in 1995. The VHA has academic teaching affiliations with 107 medical schools, involving 25,000 physicians, 35,000 residents and fellows, and 90,000 trainees. More than 65 percent of U.S. physicians and a near majority of other health professionals have received some training in a VA facility. The 2  The information in this section comes from Ruschmeier (2011), unless otherwise indicated.

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32 LOVELL FEDERAL HEALTH CARE CENTER MERGER VHA also spends about $1.7 billion annually on clinical, basic, rehabilita- tion, and health services research. NORTH CHICAGO BACKGROUND This section reviews the history of the Navy and the VA health care facilities that combined to form the Lovell FHCC and the context in which the FHCC arose. A detailed history of issues encountered during imple- mentation, and how they were resolved, is presented in Chapter 3. A cross- sectional description of the current FHCC is presented in Chapter 4. Naval Hospital Great Lakes The Navy opened a base in North Chicago in 1911 to train enlisted recruits from the Midwest. What is currently called the Naval Station Great Lakes (NSGL) went through boom cycles during and bust cycles after the two world wars, but the Korean conflict and the Cold War resulted in a substantial rebuilding of the recruit training facilities from the mid-1950s to the mid-1960s (Naval Station Great Lakes, 2012). The Naval Hospital Great Lakes (NHGL) was built in 1960. The 12-story, 825-bed building, known as 200H, was a tertiary facility with 850 beds, 11 operating rooms, and space for 16 clinics. It provided care for military personnel on the base and was the primary receiving hospital for sailors and Marines injured in the Vietnam War. The 1993 Base Realignment and Closure (BRAC) Commission recom- mended closing the enlisted recruit training centers at San Diego, Califor- nia, and Orlando, Florida, and consolidating all enlisted recruit training at North Chicago (BRAC, 1993). The consolidation of training meant that the NSGL would be processing in 30,000 to 40,000 recruits per year, each of whom must undergo medical intake and receive any needed medical and dental care to be found to be medically fit for deployment during the 8.5 weeks of basic training. The NSGL is also the location of many advanced training schools for about 22,000 enlisted personnel annually, as well as for the 29,000 military staff members and their families stationed at the base, for whom the Navy must provide health care. To accommodate the expanded mission of the NSGL, the Navy launched an $860 million rebuilding program, known as the Recruit Train- ing Command (RTC) Recapitalization Program, or RTC Recap, in 1997. (The RTC Recap was completed in July 2010.) The 200H would have been 40 years old in 2000 and in need of renovation or replacement. By this time, the Navy was staffing about 50 medical-surgical beds, which were about 50 percent occupied, and most of the building had been converted to outpatient clinic space.

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HISTORY AND CONTEXT 33 The Navy had performed several studies to determine the optimal utilization and future state of the NHGL. A facility master planning study by the SRA Corporation in 2001 determined that the facility constraints of the NHGL were significantly impeding the delivery of quality health care. For example, the 40-year-old facility could no longer meet Joint Commis- sion life safety standards without a substantial upgrading. DoD’s military construction program planned to replace the 200H in FY 2007 at a cost estimated in 2001 to be $170 million (Cox and McCready, 2005). In 1999, an internal VA study proposed closing all inpatient care at the North Chicago VAMC (NCVAMC) and converting it into an outpatient clinic. Local veterans’ groups and the Illinois congressional delegation be- gan to promote the possibility of combining inpatient care for both DoD and VA beneficiaries at the NCVAMC to justify keeping it open and to avoid the costs of building a new naval hospital. The Navy had the Center for Naval Analyses (CNA) analyze options that ranged from building a new hospital on the Navy base to partnering with the NCVAMC to take advantage of excess capacity in that facility. The most realistic options were either to build an ambulatory care center on the base and refer patients needing hospitalization to area hospitals, or to build a joint ambulatory care center next to the NCVAMC and use the facility for inpatient care. The advantages for the Navy of consolidation with the NCVAMC, in addition to avoiding the cost of building and maintaining a new hospital facility, included the lower cost of direct care compared with care provided by com- munity facilities, the ability to keep injured and ill recruits in a military-like setting, and the opportunity for Navy clinicians to maintain their skills. North Chicago Veterans Affairs Medical Center The NCVAMC opened in 1926 on land obtained from the Navy. The initial mission of the 325-bed hospital was the care of long-term, chronic psychiatric patients who had served in World War I. From the beginning of the NCVAMC, it provided medical, surgical, and nursing services for the acute care needs of the inpatient population. In 1949, in the aftermath of World War II, the total number of hospital beds reached 2,500. A new hospital building was constructed in 1978 and renovated in 1992 and 1996. Acute psychiatry facilities were modernized in 1996. 1970s: Expansion of Acute Care Capacity Beginning in 1974, the NCVAMC began to return psychiatric patients to the community and to expand its acute care capacity. The overall number of beds fell from 2,500 in 1969 to 1,728 in 1978, reflecting a 35 percent decrease in psychiatric beds (from 1,313 to 849). By contrast, the number

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34 LOVELL FEDERAL HEALTH CARE CENTER MERGER of general medical-surgical beds increased by 78 percent (from 388 to 689). In recognition of the shift away from psychiatric services, the NCVAMC was designated a general medical and surgical hospital by the VA in 1975. A 1978 General Accounting Office (GAO) report was very critical of this shift in mission, based on its modeling of demand, which found that the medical center would need only 105 beds in 1985 (GAO, 1978a). In 1973, the NCVAMC proposed an affiliation with the Chicago Medi- cal School, on the basis that the school would relocate from downtown to VA land adjacent to the hospital, and the medical center would maintain 450 to 500 acute care beds to enable training and education of medical school students and residents. The VA approved the affiliation, and the medical school, now part of the Rosalind Franklin University of Medicine and Science, moved to its present site in 1980. 1970s and 1980s: Abortive Attempts to Consolidate In 1978, the GAO issued an in-depth report on obstacles to sharing of health resources between federal agencies (GAO, 1978b). In response, Senator Charles Percy of Illinois, chairman of the Senate Government Af- fairs Committee, introduced a bill to promote interagency sharing of health care resources that eventually became the VA/DoD Health Resources Shar- ing and Emergency Operations Act (Public Law 97-174) in 1982. After the Navy surgeon general testified at hearings on the bill that the NHGL had an average occupancy rate of less than 20 percent (120 of 656 beds), Percy asked the GAO to conduct a “review of the opportunities, the potential for savings and improved patient care, and the obstacles associated with shar- ing medical resources between the Veterans Administration Medical Center (VAMC), North Chicago and the Naval Regional Medical Center (NRMC), Great Lakes, Illinois” (GAO, 1980, p. 1). The GAO found that, earlier in the 1970s, local VA officials had been interested in using the NHGL if a cross-servicing agreement could be reached, but that an effort to negotiate an agreement was never initiated. Instead, the VA spent $9.3 million on construction and equipment to up- grade the acute medical/surgical capability at the NCVAMC. In late 1979, the Navy surgeon general and the VA’s chief medical of- ficer formed a working group of local, regional, and central office officials from both departments to explore the possibility of consolidating inpatient care at the naval hospital. The surgeon general suggested three alternatives: 1. Navy assumes the VA’s workload on a reimbursable basis. 2. VA leases the Navy facility and provides services to Navy benefi- ciaries on a reimbursable basis. 3. Navy/VA operate jointly (GAO, 1980, Enclosure 1, p. 3).

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HISTORY AND CONTEXT 35 The working group concluded that consolidating acute medical and surgical services at the naval hospital was possible and desirable. From the Navy’s perspective, the benefits included 1. expansion of its services for its beneficiary population, 2. increased accessibility to care, 3. an opportunity for a portion of the local staff to remain in place during mobilization, 4. more efficient use of the existing facility, and 5. cost savings to the government and the Navy beneficiary popula- tion (GAO, 1980, Enclosure 1, p. 6). From the VA’s perspective, the naval hospital was more modern and better addressed the population’s health care needs. The VA could close two 50-year-old psychiatric inpatient buildings that were expensive to maintain and operate and move the patients into the main hospital facility, Building 133, which was 20 years old, after renovation that would be less costly than upgrading the building to acute-care standards. VA and Navy officials also noted that such a major sharing agreement could set a precedent and provide a model for additional VA/DoD sharing arrangements. The officials also pointed out, however, that the VA/DoD sharing act (Public Law 97-174) did not address a number of administrative and personnel issues that would have to be resolved. • How would the consolidated hospital be managed? Who would control the joint medical/surgical service and ancillary service? Would the Chief of Medicine, for example, be from the VA or the Navy? • With different employee pay and benefit systems, which agency would control the consolidated service arrangement? • With dissimilar forms and records, which ones would be used? • How would the upward mobility of VA employees working in the Naval facility be affected? • How would union actions be addressed for VA employees working in the Naval facility? • How would the Navy maintain command and control over military people working side-by-side with essentially civilian VA employees subject to different rules and regulations? (GAO, 1980, Enclosure 1, p. 17). The same issues confronted the planners of the Lovell FHCC and, in some instances, had to be resolved by special legislation (see Chapter 3). By the time the GAO reported on the situation, both the Navy surgeon

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36 LOVELL FEDERAL HEALTH CARE CENTER MERGER general and the VA’s chief medical officer had retired. Although the VHA regional director continued to favor a joint enterprise, the plan to use the NHGL to treat veterans was not implemented. 1990s: Department of Veterans Affairs Efforts to Rationalize Services in the Chicago Area By the early 1990s, the VA health care system was encountering seri- ous problems with quality of care and inpatient overcapacity. In 1991, the NCVAMC itself was in the national news when the VA inspector general reported that six deaths at the center were caused by poor care (New York Times, 1991). In 1992, inpatient surgery was discontinued at North Chi- cago and moved about 40 miles south to the Hines VA hospital. Despite problems with inpatient surgery, Building 133 was renovated in 1996 at a cost of $139 million to consolidate all outpatient services ex- cept mental health in one building (DAC Bond, 2010). The renovation also included 150 medical and 25 acute psychiatric beds (Lovell FHCC, 2006). The GAO reported that the number of beds was not based on any analysis of need but on an assumption that if the beds were there, people would come. In fact, the NCVAMC suffered chronic overcapacity after the 1996 renovation (Lovell FHCC, 2006), which was an incentive to accept patients from the nearby naval base rather than face closure for lack of demand. In 1995, the VHA adopted a new organizational structure. All veterans health care services in North Chicago were organized and regionally man- aged under the Veterans Integrated Service Network (VISN) 12, one of 21 VISNs nationwide. The VA had already begun the process of consolidating the VAMCs in some local areas, but the reorganization of services in the Chicago area was left to the new VISN director. There were four VAMCs in the area. Lakeside and West Side were 7 miles apart in the city. Hines was just west of Chicago. North Chicago was north in an outer suburb. The GAO, at the request of the Illinois congressional delegation, began to report on developments in Chicago. In 1997, for example, the GAO re- ported that the VA could save $20 million a year in operating costs if there were three rather than four VAMCs in the Chicago area (GAO, 1997). In 1998, the GAO reported that, because of overcapacity, the VA could close one of the two downtown medical centers without reducing access. The same report noted that the average daily census at the NCVAMC had decreased from 470 in 1994 to 240 (27 medicine and 213 psychiatric) in 1997 and that the facility had closed 244 beds during that time period (GAO, 1998). A committee representing the local stakeholders, including the medi- cal schools, was unable to reach agreement on a restructuring plan. In re- sponse, the VHA chartered an internal committee composed of leaders and

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HISTORY AND CONTEXT 37 managers from outside of Chicago, headed by the director of the Central Arkansas Veterans Healthcare System. The committee considered six alter- natives and, in September 1999, chose one that would save $188 million per year by consolidating most inpatient services at the Lakeside VAMC (U.S. House of Representatives, 1999). In its report, the VISN 12 Delivery System Options Study, the committee recommended that inpatient care at the NCVAMC be ended and shifted to Lakeside and that the center provide only outpatient care along with long-term and residential treatment (domi- ciliary) care. The VA undersecretary for health found that the committee’s findings and recommendations provided a good foundation for further study, but were significantly limited because they did not account for (1) the geographic location of veterans living in VISN 12, (2) the modeling of future demand for health care services, (3) objective evaluation criteria to assess the value of each option, and (4) the lack of stakeholder input into the process. Veterans groups in North Chicago strongly opposed the proposed changes, objecting to having to travel 60 minutes or more to Lakeside or Hines for hospitalization. Local unions representing NCVAMC employees also protested (Kuczka, 1999a). Senator Richard Durbin and Representa- tive John Porter, the local congressman, told veterans that they would fight to keep the NCVAMC open (Kuczka, 1999b). The save-the-NCVAMC campaign was followed closely by the Chicago-area press (e.g., Flink, 1999). 1999–2000: Saving the North Chicago Veterans Affairs Medical Center Within weeks of the leak of the VISN 12 options report in September 1999, Durbin and others in the Illinois congressional delegation developed a plan to save the NCVAMC. Rather than have the Navy spend millions of dollars to renovate or replace the 40-year-old NHGL, they proposed that the Navy use the nearby VA facility instead (O’Matz, 1999). In Febru- ary 2000, Durbin was able to announce that agreement had been reached that the NCVAMC would provide psychiatric inpatient care and certain outpatient services to Navy personnel stationed at Great Lakes, and that the NHGL would provide certain surgical procedures and some diagnostic testing to veterans being seen by doctors at the NCVAMC. He characterized the agreement as “a first step toward what we hope will be a very positive partnership that is good for veterans, active-duty personnel and taxpayers” (Presecky, 2000). Porter retired in 2000 and was succeeded by his longtime legislative assistant, Mark Kirk, who made saving the NCVAMC a major part of his election campaign. Soon after his election, Representative Kirk told local veterans in a meeting at the NCVAMC that the best way to keep the center

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38 LOVELL FEDERAL HEALTH CARE CENTER MERGER open was to combine it with the NHGL, saying “that would obviate the need for a new naval hospital, it would decrease the cost for taxpayers, and it would ensure the survival of this institution” (Chicago Tribune, 2001). Kirk, a Naval Reserve officer, was assigned to the House Armed Services Committee, which helped him in working with the Navy to close a deal (Dunn, 2010). In June 2001, Kirk led a bipartisan group of congressional staffers on a tour of the NHGL and the NCVAMC to build further support for combining the facilities (Flink, 2001). Local veterans groups favored a merger to save “their” hospital. At a rally at a Veterans of Foreign Wars post, for example, the head of the McHenry County Veterans Assistance Commission stated: “Surgery is their strong suit at Great Lakes; medical treatment is theirs at North Chicago. It would be a good thing for all of us” (Barnes, 1999). The 2001 Veterans Integrated Service Network 12 Capital Asset Realignment for Enhanced Services Report In response to the intense negative reaction of the various Chicago stakeholders to the 1999 VISN 12 options study, the House Committee on Veterans’ Affairs Subcommittee on Health asked the VA to develop and adopt objective, measurable criteria for formulating and evaluating options for restructuring the delivery of health care (U.S. House of Representatives, 2000). In response to that request, the VHA developed an improved evalu- ation framework and study methodology for assessing facility needs, called the Capital Asset Realignment for Enhanced Services (CARES) process. CARES addressed the deficiencies in the original VHA internal committee methodology and incorporated the “all or none” decision-making model of DoD’s BRAC process. The VA engaged Booz-Allen & Hamilton (BAH) to pilot the CARES process in VISN 12. Meanwhile, as described above, the Navy was sponsoring studies of the follow-on to 200H, the obsolete NHGL building. Those studies ex- plicitly considered alternatives that included shifting inpatient care to the NCVAMC. BAH, using a private sector model to forecast demand through FY 2010, concluded that if no VAMCs had ever existed, that is, there was a clean slate, only two hospitals would be needed in the Chicago area, one near the existing West Side VAMC in downtown Chicago and the other 5–10 miles west of Hines. “We would not plan to construct an inpatient fa- cility at North Chicago. . . . North Chicago is, however, a reasonable loca- tion for a multi-specialty ambulatory care clinic” (Booz-Allen & Hamilton, 2001, pp. 5–6). However, the four VAMCs did exist. BAH developed four options for the Chicago area, each featuring a different treatment of the West Side and Lakeside VAMCs. Each option treated the NCVAMC the

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HISTORY AND CONTEXT 39 same, however, allowing it 27 acute medicine and 30 acute psychiatric beds and suggesting a sharing agreement with the Navy. The nearby Naval hospital is in need of extensive renovation, and some consideration has been given to building a new one. With four empty acute wards and a state-of-the-art intensive care unit at the North Chicago VAMC, an opportunity exists for the VA and the DoD to share this under- utilized acute care resource. Therefore, in Option A, as in all the options in the Southern Market, a sharing agreement between the VA and the DoD is proposed. If that agreement were reached, the acute medical and surgi- cal workload provided by the Navy, currently estimated to be about two wards or 60 patients, when added to the VA acute care workload, would provide a critical mass of acute care beds sufficient to justify ongoing acute inpatient care. Even if a VA/DoD sharing agreement is not reached, all four options propose keeping a small acute medical service. With approximately 248 nursing home beds and approximately 100 psychiatric beds, acute medical beds will be needed on an ongoing basis to accommodate those long-term care patients who “decompensate.” Given the size of this campus and the spectrum of services, the incremental cost of these added acute beds is relatively small and clinically appropriate. This option also preserves the affiliation with Chicago Medical School. (Booz-Allen & Hamilton, 2001, pp. 5–12) Each of the four options recommended 57 acute care beds (27 medical and 30 psychiatry) at the NCVAMC, in part to serve the needs of patients in the 541 non-acute beds it recommended that the NCVAMC have (248 nursing home, 67 long-term psychiatry, 186 domiciliary, and 40 residential rehabilitation treatment program) (Booz-Allen & Hamilton, 2001, pp. 5–12). According to the BAH report, the NHGL’s average daily census in its medical-surgical beds was 24 and in its acute psychiatric beds was 22, which BAH judged could be easily absorbed by the VA (Booz-Allen & Hamilton, 2001, pp. 8–20). The VA secretary issued his decision on the restructuring of health care in VISN 12 in February 2002. The announcement focused on the decision to close inpatient care at the Lakeside VAMC and move all acute inpatient services to the West Side VAMC; the only reference to the disposition of inpatient and other services in North Chicago was the statement that “shar- ing opportunities between the North Chicago VA Medical Center and the adjacent Naval Hospital Great Lakes will be enhanced” (VA, 2002b). Be- fore and shortly after the VA secretary’s announcement, serious discussions were opened between the VA and the DoD on the futures of the NCVAMC and the NHGL.

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40 LOVELL FEDERAL HEALTH CARE CENTER MERGER 2001–2002: Deciding on a Consolidated Federal Health Care Facility By 2001, the director of the NCVAMC and the commanding officer of the NHGL were discussing how to proceed (Kuczka, 2001). The two facili- ties had done some sharing over the years. For example, in the late 1980s, the NHGL purchased a computed tomography scanner. The NCVAMC provided two technicians in return for use of the scanner. In the early 1990s, when the NHGL found it difficult for contracting and pay reasons to recruit psychologists, psychiatrists, pharmacists, radiologists, nurses, and other professionals, the NCVAMC agreed to hire 75 staff using its Title 38 authority to work at the hospital, although that arrangement was subsequently determined to be illegal by the Navy’s judge advocate general (Harnly, 2005). In the mid-1990s, the NCVAMC was using the NHGL for total joint replacements, which tripled the volume of cases for the Navy orthopedic surgeons. According to the VISN 12 CARES study, the VA and the DoD signed an agreement in March 2000 permitting active duty servicemembers and their dependents to receive specialty care at the VA and veterans to receive care at the NHGL (Booz-Allen & Hamilton, 2001, pp. 8–19). In 2003, 2–3 veterans per week were undergoing orthopedic and surgical procedures at the NHGL (Hagen, 2003). In July 2001, the VA/DoD Health Executive Council became involved. It appointed a North Chicago VA–Great Lakes Naval Training Center Task Force to “explore short and long term options for improved coordination of health care delivery, including review of the possibility of establishing a joint medical facility serving both veterans and Navy personnel” (Mackay, 2002, p. 61). The task force was to report in the late spring of 2002 with the “facts and figures that are necessary to make a good business decision” (Chu, 2002, p. 33). In February 2002, VA Deputy Secretary Leo Mackay and Secretary of the Navy Gordon England traveled to North Chicago to sign a “land- mark” capital asset sharing agreement. The agreement was for the VA to transfer 48 acres to the Navy to build recruit barracks and a drill hall in exchange for which the Navy would purchase electricity and steam from a VA-sponsored cogeneration energy center (VA, 2002b). In October 2002, the DoD and the VA agreed on the basic plan for structuring the VA/DoD health service system in North Chicago. According to the plan, • the Navy would use the NCVAMC for inpatient mental health care. • the VA would renovate the NCVAMC surgical suite, post-anesthesia care unit, and emergency department.

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HISTORY AND CONTEXT 41 • the Navy would transfer its inpatient medical/surgical workload to the NCVAMC after the renovation. • the Navy would construct a new Ambulatory Care Center on the NCVAMC campus for joint use (Cox and McCready, 2005). According to the VA press release announcing the agreement, the Navy would construct a new ambulatory medical facility for outpatient services. The North Chicago VA Medical Center will provide comprehensive surgical care. The Navy, through partnership with North Chicago VAMC, will use the VA hospital for its inpatient medical and surgical needs. Additionally, Navy surgical teams will work at the North Chicago VAMC, enabling them to maintain their surgical competencies. (VA, 2002a) William Winkenwerder, the assistant secretary of defense for health affairs, explained the purpose of the agreement as follows: With this agreement, the Navy gains a modern ambulatory care center at a cost less than building a new hospital. VA beneficiaries gain increased access to surgical care closer to their homes and families, and the overall operating expenses of both departments should be reduced. (VA, 2002a) Summary Through 2002 A number of factors led to the effort to consolidate health care services provided by the Navy and the VA in North Chicago. A major factor in the proposed changes was driven by the national private and public health care delivery trend away from hospital care toward delivery of more services in the ambulatory medical, surgical, and psychiatric health care settings. Some other long-term health care, military, and political factors added pressure for change and others were events that helped to shape the changes that occurred. They included the following: • The 1993 BRAC recommendation to close the naval training cen- ters at San Diego and Orlando and consolidate all recruit training at the NSGL. This substantially increased the demand for health care services from DoD beneficiaries in North Chicago. • The 1999 VA working group report on ways to address excess capacity in Chicago-area VAMCs, which recommended that the NCVAMC be converted into an ambulatory care center. That threat of closure provided an incentive to accept the NHGL’s inpa- tient workload.

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42 LOVELL FEDERAL HEALTH CARE CENTER MERGER • Political pressure beginning in 1999 from local veterans organi- zations through the Illinois congressional delegation to keep the NCVAMC open. • The 2001 VISN 12 CARES report, which recommended increased collaboration with the Navy to justify keeping the NCVAMC open. • The 2001 report by the SRA Corporation on the need to replace the Navy hospital building, built in 1960, to meet Joint Commis- sion life safety standards, which could be avoided by using the NCVAMC for inpatient and emergency services. • Sustained oversight by and funding from the VA/DoD Joint Execu- tive and Joint Health Councils beginning in 2001 for the establish- ment of a combined federal facility in North Chicago. • The 2002 report by CNA on Navy health care options in North Chicago, several of which involved using the NCVAMC for inpa- tient care. • Persistent congressional interest in piloting an integrated VA/DoD health care center at some location. Some of the trends facilitating collaboration included the following: • Shifts in beneficiary utilization. Demand for inpatient services was falling off sharply, reflecting changes in health care delivery, but that was offset by increases in the number of active duty enrollees due to the global war on terror, the number of veterans eligible for VA health care due to the Veterans Millennium Health Care and Benefits Act of 1999, and the demand from retirees and their dependents with the implementation of TFL in 2001. • The reduced and constantly changing number of active duty pro- viders resulting from deployments made after 2001, which would be mitigated by using VA providers who do not deploy. • The need to maintain the clinical skills of active duty providers, which would be enhanced by treating a larger number of patients with a great range of high acuity medical conditions. • The high and increasing cost of health care for DoD beneficiaries, which provided an incentive to expand direct care to avoid sending patients to more expensive community providers. The main motivation for collaboration, however, was the confluence of the need to replace the NHGL and the constituent pressure to keep the NCVAMC open (Cox and McCready, 2005). In that context, a consolida- tion of services seemed to be a win-win solution. Developing a combined delivery structure would almost certainly reduce construction and operating costs, probably reduce the disruption of deployments of Navy clinicians,

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HISTORY AND CONTEXT 43 and possibly increase access and quality of care, patient satisfaction, medi- cal education and research opportunities, and the ability of Navy clinicians to treat more complex cases. REFERENCES Barnes, D. 1999. McHenry County vets fear losing VA hospital. Chicago Tribune, Novem- ber 19. http://articles.chicagotribune.com/1999-11-19/news/9911190240_1_veterans- hospital-world-war-ii-veteran-outpatient (accessed July 26, 2012). Booz-Allen & Hamilton. 2001. Capital Asset Realignment for Enhanced Services (CARES): VISN 12 service delivery options. June 19. McLean, VA: Booz-Allen & Hamilton. BRAC (Defense Base Closure and Realignment Commission). 1993 (July 1). Report to the President. Arlington, VA: BRAC. Chicago Tribune. 2001. Kirk floats option to save VA center. March 24. http://articles. chicagotribune.com/2001-03-24/news/0103240201_1_veteran-population-ages-military- veterans-enrollees (accessed July 26, 2012). Chu, D. 2002. VA-DoD health care sharing by the Department of Defense and the Depart- ment of Veterans Affairs. Hearing before the Health Subcommittee of the Commit- tee on Veterans’ Affairs and the Military Personnel Committee of the Committee on Armed Services, House of Representatives, March 7. Washington, DC: U.S. Government Printing Office. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_house_ hearings&docid=f:80528.pdf (accessed July 26, 2012). Cox, K., and S. McCready. 2005. Current DoD/VA issues. PowerPoint presentation at the 2005 TRICARE Conference. http://www.tricare.mil/DVPCO/conf2005.cfm (accessed July 26, 2012). CRS (Congressional Research Service). 2009. Military medical care: Questions and answers. RL33537, May 14. http://www.fas.org/sgp/crs/misc/RL33537.pdf (accessed September 14, 2012). DAC Bond. 2010. Bond disclosure. http://pdfuri.com/north-chicago-veterans-affairs-medical- center (homepage: http://www.dacbond.com) (accessed August 3, 2012). DoD (Department of Defense). 2010. 2010 Military Health System stakeholders report. Sharing knowledge: Achieving breakthrough performance. http://health.mil/Libraries/ Documents_Word_PDF_PPT_etc/2010_MHS_Stakeholders_Report.pdf (accessed July 27, 2012). DoD. 2011a. 2011 Military Health System stakeholders report. The quadruple aim: Work- ing together, achieving success. http://health.mil/Libraries/Documents_Word_PDF_PPT_ etc/2011_MHS_Stakeholders_Report.pdf (accessed July 27, 2012). DoD. 2011b. Evaluation of the TRICARE program FY 2011. http://www.tricare.mil/hpae/_ docs/TRICARE_2011.pdf (accessed August 3, 2012). Dunn, J. 2010. The many sides of Mark Kirk. Illinois Issues, November. http://illinoisissues. uis.edu/archives/2011/01/kirk.html (accessed July 27, 2012). Flink, J. 1999. Veterans speak out on altering VA hospital: Durbin hears pleas, vows to delay plans until rebuttal heard. Chicago Tribune, October 26. http://articles.chicagotribune. com/1999-10-26/news/9910260165_1_va-facilities-veterans-integrated-service-network- worl-war-ii-veteran (accessed July 27, 2012). Flink, J. 2001. Kirk urges military hospital tie-in. Chicago Tribune, June 9. http://articles. chicagotribune.com/2001-06-09/news/0106090238_1_va-hospital-veterans-integrated- service-network-active-duty-personnel (accessed July 27, 2012).

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HISTORY AND CONTEXT 45 O’Matz, M. 1999. Navy urged to rescue VA hospital. Chicago Tribune, November 11. http:// articles.chicagotribune.com/1999-11-11/news/9911110257_1_va-community-veterans- day-va-patients (accessed July 27, 2012). Presecky, W. 2000. Navy, VA reach accord on vets’ medical services; Great Lakes, N. Chicago Hospitals to provide care. Chicago Tribune, February 27. http://articles.chicagotribune. com/2000-02-27/news/0002270159_1_veterans-hospitals-va-study-delegation (accessed July 27, 2012). Ruschmeier, E. 2011. VA health care overview: VA/DoD Liaison Sharing Office. Presentation at the 2011 VA/DoD Joint Venture Conference, October 18. http://www.tricare.mil/ DVPCO/downloads/CJVC2011/VA%20Update.pptx (accessed July 27, 2012). TRICARE. 2012. TRICARE choices at a glance. May. http://tricare.mil/mybenefit/Download/ Forms/AtaGlance_Brochure.pdf (accessed September 17, 2012). U.S. House of Representatives. 1999. VA’s capital assets realignment plan for enhancing services to veterans. Hearing before the Subcommittee on Oversight and Investigation of the Committee on Veterans’ Affairs, July 22. Washington, DC: U.S. Government Printing Office. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=106_house_ hearings&docid=f:62150.pdf (accessed July 27, 2012). U.S. House of Representatives. 2000. VA capital asset planning. Hearing before the Sub- committee on Health of the Committee on Veterans’ Affairs, April 5. Washington, DC: U.S. Government Printing Office. http://frwebgate.access.gpo.gov/cgi-bin/getdoc. cgi?dbname=106_house_hearings&docid=f:65441.pdf (accessed July 27, 2012). U.S. House of Representatives. 2010. Report to accompany H.R. 5822, Military Construction, Veterans Affairs, and related agencies appropriations bill, 2011. Committee on Appro- priations, July 22. Washington, DC: U.S. Government Printing Office. VA (Department of Veterans Affairs). 2002a. VA and DoD agree on health care in North Chicago. Press release, October 18. http://www1.va.gov/opa/pressrel/pressrelease. cfm?id=523 (accessed July 27, 2012). VA. 2002b. VA announces decision on realigning Chicago-area hospitals. Press release, Febru- ary 8. http://www.va.gov/opa/pressrel/pressrelease.cfm?id=396 (accessed July 27, 2012). VA. 2012. VA congressional submission for FY 2013 funding and FY 2014 advance appro- priations: Volume II, medical programs & information technology programs. http:// www.va.gov/budget/docs/summary/Fy2013_Volume_II-Medical_Programs_Information_ Technology.pdf (accessed July 27, 2012).

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