Defense Department spending on its top 21 expenses slowed in 2008 after six years of strong growth, while spending on healthcare services cracked the top six DOD expenses for the first time since the decade began.

The Pentagon nearly doubled the amount it spent on its top 21 expenses from 2001 to 2007, according to an Aerospace DAILY analysis of data supplied by the National Institute for Computer Assisted Reporting. (See chart p. 6.)

Despite the slowdown in 2008, Pentagon funding for contracts and modifications for those top 21 expenses still rose about 16 percent compared to 2007. But the shift in Pentagon spending focus to healthcare services is an alarming trend for traditional defense contractors.

Analysts were not surprised. They said the Pentagon has been more concerned about providing those services, especially in light of recent scandals such as patient care at Walter Reed Army Medical Center.

“The cost of military healthcare increased 144 percent between 2001 and 2008, which is a higher rate of increase than most other defense spending categories,” the Lexington Institute’s Loren Thompson said. “Part of the increase is traceable to casualties incurred in a multi-front war, but most of it reflects the constantly escalating costs of routine medical services.

“A defense advisory panel recently warned that rising healthcare costs pose an ‘existential’ threat to the nation’s defense posture, but that hasn’t stopped Congress from continuously increasing benefits for warfighters, veterans and their dependents,” Thompson said.

The numerical analysis bears out his observations. For example, the total Pentagon expenditures for fixed-wing costs — the number one expense — rose by a mere $2 million in 2008 compared to 2007, the analysis of contracts and modifications shows. Meanwhile, those contracts and modifications shrank by two percentage points to 14 percent of the top 21 Pentagon expenses.

Besides healthcare services, the other expenses to get a larger piece of the Pentagon pie were transactions for tracked combat, assault and tactical vehicles, which rose by three percentage points to 10 percent. The Pentagon tallied about $13.7 billion in those transactions for 2008, compared to $8.7 billion in 2007, the analysis shows.

DOD rang up about $136 billion in its top 21 expenses for 2008, compared to about $117 billion for those leading expenses in 2007.

Overall for 2008, the Pentagon reported about 1.3 million contracts and modifications worth about $319 billion. The average contract and modification came to about $236,000.

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