GAO greenlights $58 billion in DoD TRICARE awards, denying nine industry protests

The Government Accountability Office has denied nine out of nine bid protests filed by health insurers who came out on the losing end of the Defense Department’s $58 billion in contract awards to run the military’s managed health care system.

The protests were widely expected because of the sheer dollar volume of the contracts, but their wholesale denial represented a major victory for Defense health officials. They had hoped to avoid a repeat of the last round of contract competition for the TRICARE system, a debacle in which all three were overturned in bid protests that delayed their final implementation by almost three years.

This time, DoD sought advance advice from GAO and other acquisition experts in hopes of making the latest round of TRICARE contracts as protest-proof as possible in the months leading up to the eventual July awards to Humana and Health Net Federal Services.

“I am pleased our new TRICARE contracts are moving forward.  The new contracts demonstrate our continuing commitment to serving the health care needs of our country’s military service members, retirees and their families,” Dr. Karen Guice, the acting assistant secretary of Defense for health affairs said in a written statement to Federal News Radio. “We retained the best parts of prior contracts and incorporated new best practices to improve access, quality and safety.”

In its own statement, GAO made clear that it had reached a final conclusion in all of the cases, filed by competing health insurers Wellpoint, UnitedHealth Military and Veterans, and by one of the winners, Health Net.

“GAO reviewed the protesters’ multiple challenges to the selection decisions and found no basis to sustain or uphold the protest,” said Ralph White, GAO’s managing associate general counsel for procurement law. “In denying the protests, GAO concluded that the [Defense Health] Agency’s evaluation was reasonable, consistent with the terms of the solicitation, and in accordance with procurement laws and regulations.”

A GAO official who asked not to be named said the office expected to publish a publicly releasable version of its decision within two weeks, once it’s been scrubbed of proprietary information, adding that the protestors did not converge around any one specific problem with the TRICARE awards; rather, each raised highly-specific reasons for why they believed they should have been granted work under the new contracts, dubbed “T-2017.”

In the latest round, DoD decided to consolidate its current three regionally-managed contracts into just two: the more populous North and South regions became TRICARE East, while the TRICARE West contract, covering most beneficiaries west of the Mississippi River remained geographically unchanged.

Barring any further legal action, Humana, the incumbent contractor for TRICARE South, will manage the new East region under a $40.5 billion contract.

Health Net is the incumbent contractor for the North region that will continue to exist until DoD phases-in the T-2017 contracts during the coming nine to 12 months. That firm won the West contract, valued at $17.7 billion over the next five years. But DoD specified in its request for proposals that no single company could hold both contracts, so Health Net filed a bid protest over having lost the much more lucrative TRICARE East contract.

“We are honored and humbled to be awarded the TRICARE West region contract to serve this extraordinary population of beneficiaries, as well as supplement and extend the healthcare mission of the Defense Health Agency,” Billy Maynard, the president and CEO of Health Net Federal Services said in a  statement Monday.

Health Net also indicated the firm expects a final transition to the new contracts sometime in the second half of 2017.

The biggest loser from the GAO decision was United Healthcare, which currently serves the TRICARE West region. A company spokesman declined to comment specifically on whether the insurer might pursue further avenues to protest the contract awards, such as filing a lawsuit before the Court of Federal Claims, but he deferred to a company statement that seemed to foreclose that possibility.

“United Healthcare remains fully committed to serving the health care needs of our country’s military service members, retirees and their families in the TRICARE West Region, including a successful transition,” the emailed statement read. “We will continue to look for opportunities to support the government and bring quality and innovative solutions to meet the health care needs of our nation’s military families and veterans.”

Guice said DoD was also doing everything possible to ensure a smooth migration to the new contracts for the nearly 10 million military members, family members and retirees the TRICARE system serves.

“We’ve added new controls to provide a more seamless transition to the new contracts,” she said.  “We’ll work very closely with our new partners to test their systems and ensure a smooth handoff of care for all of our beneficiaries.”

The T-2017 contracts included provisions for a slow, gradual transition period, partially because of some of the severe hiccups beneficiaries experienced in the last round of contracts once the dust finally settled around bid protests. In one case, Defense health officials decided to bypass their usual rules for requiring preauthorizations for health care services because of a “contractor failure” to handle the incoming volume of new work.

“We learned some fairly significant lessons in that last transition,” Vice Adm. Raquel Bono, director of the Defense Health Agency, told reporters in July. “In our selection of the vendors, we wanted to look closely at transition plans and their ability to meet our standards. One of the big lessons we’re going to put into play here is that we absolutely will not shift over until we are assured that the new vendors can perform all the tasks they need to.”

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