Defense Health Care: More-Specific Guidance Needed for TRICARE's Managed Care Support Contractor Transitions
Published: 2014-06-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD provides health care through TRICARE, its regionally structured health care program. In each of its regions (North, South, West), DOD uses contractors to manage health care delivery through civilian providers, among other tasks. UnitedHealth—an organization new to TRICARE—was awarded the contract in the West region. After health care delivery began, UnitedHealth experienced problems fulfilling some requirements and delivering care to TRICARE beneficiaries.
GAO was asked to review the West region's transition to UnitedHealth. This report provides information on (1) the extent to which TMA provided guidance and oversight of the new contractor's transition period in preparation for health care delivery; and (2) how, if at all, TMA's guidance and oversight during the transition period contributed to issues with health care delivery. GAO reviewed and analyzed TMA guidance, contract requirements, and other relevant documentation, and interviewed TMA and UnitedHealth officials.
section_title: What GAO Found
paragraphs: The recent transition of TRICARE's managed care support contractors (contractors) in the West region did not go smoothly and highlighted numerous deficiencies in guidance and oversight by the TRICARE Management Activity (TMA)—the Department of Defense's (DOD) office responsible for awarding and managing these contracts at the time of GAO's review. For example, TMA did not ensure that its outgoing and incoming contractors used the same version of transition guidance, resulting in problems that were left largely to the contractors to resolve. Additionally, TMA's guidance lacked sufficient specificity for some requirements, such as the development of a referral management system that could interface with the referral systems used by the regions' military treatment facilities—a system that was also not tested prior to health care delivery, unlike other critical system interfaces. In addition, TMA lacked a process for holding the contractor accountable when transition requirements were delayed or not met. TMA officials explained that the regional contracts are performance-based, meaning that most—but not all—of the contract requirements include an expected outcome, but the manner in which that outcome is to be achieved is left to the contractor. As a result, TMA officials stated that, regardless of their concerns, it was difficult to hold UnitedHealthcare Military & Veterans Services (UnitedHealth) accountable until the requirement was actually missed. However, as GAO has previously reported, important attributes of a performance-based contract include features that allow for the evaluation of a contractor's performance. UnitedHealth's contract contained these features, and as a result, GAO believes that this performance-based contract structure did not diminish TMA's responsibility for providing sufficient oversight to ensure that the contractor was performing as required.
TMA's inadequate guidance and insufficient oversight contributed to problems with health care delivery. UnitedHealth experienced difficulty in meeting some of its requirements early on, disrupting continuity of care for some beneficiaries and potentially resulting in unnecessary costs. For example, the lack of guidance on developing a referral management interface contributed to problems with the processing of specialty care referrals. Consequently, the requirement for beneficiaries to obtain a referral authorization for specialty care was temporarily waived—a move that the Army estimated could cost DOD over a million dollars as beneficiaries may have obtained more specialty care from civilian providers than from military treatment facilities. Further, insufficient oversight related to UnitedHealth's determination of the number of staff needed to man its call center contributed to a delayed resolution in meeting telephone response time requirements. As a result, it was not until the third month of health care delivery that UnitedHealth was able to meet its requirement to answer 90 percent of calls within 30 seconds. These and other problems ultimately resulted in TMA holding the contractor accountable through the use of corrective action requests and financial penalties.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD review and revise as necessary, its transition guidance to strengthen its oversight and ensure that future managed care support contractors have sufficient information to successfully complete transition requirements. DOD concurred or partially concurred with GAO's recommendations, but disagreed with some of GAO's findings. GAO maintains that the information presented is accurate, and recommendations valid as discussed in the report.

section_title: Letter
paragraphs: In fiscal year 2013, the Department of Defense (DOD) offered health care  services to almost 9.6 million eligible beneficiaries in the United States  and abroad through TRICARE, its regionally structured health care  program. Under TRICARE, beneficiaries can obtain health care through  DOD’s direct care system of military hospitals and clinics, referred to as  military treatment facilities (MTF), or through its purchased care system of  civilian providers. DOD contracts with private sector companies—referred  to as managed care support contractors (contractors)—to develop and  maintain civilian provider networks and provide other services, such as  specialty care referrals, enrollment, medical case management, claims  processing, and customer service.
Each TRICARE region in the United States (North, South, and West) has  a TRICARE Regional Office (TRO) that helps oversee the contractors’  performance, including monitoring network quality and adequacy, and  customer-satisfaction outcomes. On October 1, 2013, DOD’s Defense  Health Agency (DHA) became responsible for acquiring, administering,  and overseeing TRICARE’s managed care support contracts— responsibilities formerly handled by the TRICARE Management Activity  (TMA).
Under the current, third generation of managed care support contracts,  health care delivery was scheduled to begin nationwide on April 1, 2010.  However, due to sustained bid protests for each of the contracts and  TMA’s implementation of related corrective actions, health care delivery  started at different times in each of the TRICARE regions. TRICARE’s  West region was the last of the three regions to transition to the third  generation of managed care support contracts with a health care delivery  start date of April 1, 2013. Unlike the North and South regions, which  were awarded to incumbent contractors, the West region was awarded to  UnitedHealthcare Military & Veterans Services (UnitedHealth)—an   Additionally, this was the first  organization that was new to TRICARE.transition to a nonincumbent contractor since the start of the TRICARE  program. After health care delivery began, UnitedHealth experienced a  number of well-publicized problems, reported by DOD and the media,  performing certain required services for TRICARE beneficiaries, including  difficulties with the development of its provider network and the  processing of referrals to specialty providers—problems that, according to  TMA officials, the incumbent contractors in the North and South regions  did not experience.
Questions have been raised concerning the problems that transpired after  the West region’s transition to UnitedHealth. You asked us to examine  whether UnitedHealth was fully prepared for the transition to deliver  health care, among other issues, including UnitedHealth’s outreach to  beneficiaries and providers during this time. This report provides  information on (1) the extent to which TMA provided guidance and  oversight of the new contractor’s transition period in preparation for health  care delivery; and (2) how, if at all, TMA’s guidance and oversight during  the transition period contributed to issues with health care delivery. We  also provide information on UnitedHealth’s outreach to beneficiaries and  providers during the transition period and the first 6 months of health care  delivery. (See app. I.)
To determine the extent to which TMA provided guidance and oversight  of the new contractor’s preparation for health care delivery, we reviewed  and analyzed TMA’s guidance on how the transition period was to be  structured, including the roles of TMA and TRO-West in overseeing  UnitedHealth’s transition. We also reviewed TMA’s relevant guidance and  documents for managed care support contract transitions to identify  requirements for the transition-in of a new contractor and the transition- out of an outgoing contractor. Additionally, we applied federal standards  for internal control, including risk assessment activities to identify risks  and analyze their possible effect, and other activities—such as  documentation of significant events—to help ensure that ongoing  monitoring is effective.Transitions Director from the Policy and Operations Directorate and the  Contracting Officer from the Acquisition Management and Support   We interviewed officials from TMA, including the  Directorate, both in TMA’s Aurora, Colorado office (TMA-Aurora), as well  as the Transition Manager and Contracting Officer’s Representative from  TRO-West, to obtain their perspectives on transition activities, including  oversight provided to UnitedHealth during this period. We also  interviewed officials at UnitedHealth to discuss activities that occurred  during the transition period, including the extent to which they  collaborated and communicated with TRO-West officials. TriWest  Healthcare Alliance Corporation (TriWest), the contractor for the West  region prior to UnitedHealth, was no longer the contractor when we  started our review, and as a result, we did not interview TriWest officials  about the transition.
To determine how, if at all, TMA’s guidance and oversight during the  transition period contributed to issues with health care delivery, we  reviewed and analyzed documents, including UnitedHealth’s contract  requirements and documents that described the oversight responsibilities  for TMA-Aurora and the TROs. We interviewed officials from TMA,  including both the Contracting Officer from TMA-Aurora and the TRO- West officials who provide day-to-day oversight of the contract, to discuss  how transition activities affected health care delivery. We also discussed  how the problems that occurred after health care delivery were  addressed, including how TMA used corrective action requests, award  fees, and performance guarantees to hold the contractor accountable.  Our work focused on activities and interactions through the first 6 months  of health care delivery, which ended on October 1, 2013. Because we  conducted the majority of our audit work prior to the establishment of the  DHA on October 1, 2013, we refer to TMA throughout most of this report.  When relevant, we refer to DHA for activities that occurred after that time.
We conducted this performance audit from August 2013 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Under TRICARE, DOD contracts with private sector health care  companies to supplement the care provided by military hospitals and  clinics. These contracts, which are referred to as managed care support  contracts, are generally performance-based contracts. For such  contracts, most, but not all, of the requirements include an expected  outcome, but the manner in which that outcome is to be achieved is left to  the contractor. Contractors are given discretion in determining how best  to meet the government’s performance objectives. For example, the  managed care support contract states that the contractor must maintain  an adequate network of providers, and the contractor is responsible for  determining how it will accomplish that objective, including how many  providers will be in its network.
TMA expected to award the third generation of managed care support  contracts in each of the three regions in 2009, but bid protests and other  actions resulted in delays. In the North region, the final contract was  awarded in May 2010 to the incumbent contractor, Health Net Federal  Services, after its bid protest against TMA’s initial decision to award the  contract to Aetna Government Health Plan was sustained. In the South  region, the final contract was awarded in February 2011 to the incumbent  contractor, Humana Military Healthcare Services, after its bid protest  against TMA’s initial decision to award the contract to UnitedHealth was  sustained.
As we reported in March 2014, there were two bid protests in the West  region.UnitedHealth in July 2009 challenging the award to TriWest. This protest  was sustained and included a recommendation that TMA reevaluate  proposals and make a new source selection decision. In implementing  this recommendation, TMA allowed offerors to submit revised proposals.  TMA then reviewed the revised proposals and, based on this review,  awarded the contract to UnitedHealth. After TMA announced the new  award, a second West region protest was filed by TriWest in March 2012.
The first protest was an agency-level protest filed by  GAO denied the second protest and upheld UnitedHealth as the  contractor for the West region. (See fig. 1.)
The process for implementing the third generation of managed care  support contracts involves transitioning health care delivery from the  outgoing contractor to the incoming contractor. The transition involves  planning, managing, and monitoring to ensure continuity of services for  TRICARE beneficiaries and providers. The transition period officially  begins when the managed care support contract has been signed by  DOD and the contractor, and it ends on the health care delivery start  date. For the West region, UnitedHealth’s transition period was slightly  less than 9 months; it began on July 3, 2012, and was completed on  March 31, 2013, with the health care delivery start date of April 1, 2013.
TMA has guidance for the management and oversight of managed care  support contract transitions, as well as for the incoming and outgoing  contractors. TMA’s management of all of the third-generation contract  transitions, including the managed care support contract transitions, is  governed by TMA’s Concept of Operations for TRICARE T-3 Transitions  Work Group (Concept of Operations). contractor’s performance, TMA uses the TRICARE Acquisitions Directive  (Acquisitions Directive), which establishes roles and responsibilities for  both TMA and TRO officials and a chain of command to address  contractor nonconformance. According to this directive, the Contracting  Officer is ultimately responsible for the oversight of the contractor’s  performance. The Contracting Officer’s Representative assists the  Contracting Officer with this effort by working with other TRO officials to  monitor the contractor’s performance. The TRO is responsible for the  day-to-day monitoring of the contractor’s performance during both  contract transition and health care delivery.
See TMA, Concept of Operations for TRICARE T-3 Transitions Work Group (2008). key focus areas during the transition period because of their importance  in delivering health care; they are provider network, referral management,  enrollment, medical management, claims processing, customer service,  and management. (See table 1.) The contract is also supplemented by  four TRICARE manuals, including the TRICARE Operations Manual,  which includes guidance for both the outgoing and the incoming  contractors, among other requirements.
section_title: TMA’s Guidance on Contract Transitions Was Inadequate, and Its Oversight Was Insufficient
subsections: section_title: TMA’s Transition Guidance Was Inadequate for Both TRO-West and UnitedHealth
paragraphs: TMA provided some guidance to both TRO-West and UnitedHealth for  the West region’s managed care support contract transition, but the  guidance was inadequate because it lacked sufficient specificity on how  to both oversee the transition and meet certain transition requirements.
subsections: section_title: Transition Guidance for TRO- West
paragraphs: Although TRO-West was responsible for the day-to-day management of  UnitedHealth’s transition, it lacked specific guidance from TMA on how to  provide oversight, particularly when the contractor had difficulty meeting  transition requirements. According to TMA-Aurora officials, the Concept of  Operations is the official guidance for managing the transition of all third-  generation TRICARE contracts, including the managed care support  contracts. We found that this seven-page document outlines a basic  approach for the transitions, including a general management structure.  However, it does not provide information on the specific roles and  responsibilities for managing the day-to-day transition process. It also  does not contain guidance for addressing any problems that may occur,  including a process for holding the contractor accountable when transition  activities are delayed and interim milestones are not met. Separately, the  Acquisitions Directive provides a basic approach for overseeing a  contractor’s performance, including performance during a transition  period. However, we found that this high-level five-page document also  lacks specificity on how and when to hold a contractor accountable for not  meeting requirements. For example, it notes that the Contracting Officer  has the authority to issue a corrective action request in response to the  contractor’s nonconformance, but does not provide sufficient detail on  what level of nonconformance would require such response, nor how long  the Contracting Officer should wait before sending it.
In July 2012, TMA-Aurora officials developed the TMA Transition User  Guide to supplement the Concept of Operations, which provided more- specific information on how to implement its approach for managing  contract transitions.a more-detailed structure for the transition process, including key  management roles and responsibilities for TMA-Aurora and TRO-West  officials, as well as timelines for important meetings and lessons learned  from previous contract transitions. However, similar to the Concept of  Operations and the Acquisitions Directive, it does not address how TRO- West officials should provide oversight of the contractor’s activities,  including what to do when the contractor is not on track to meet  requirements.
section_title: Transition Guidance for UnitedHealth
paragraphs: We found that TMA’s transition guidance to UnitedHealth as an incoming  contractor was also inadequate primarily because UnitedHealth’s  transition requirements were more specific than those of the outgoing  contractor, and TMA did not adequately address these differences. The  managed care support contracts include transition guidance for both the  incoming and the outgoing contractors that is outlined in the TRICARE  manuals, most notably the TRICARE Operations Manual.UnitedHealth’s contract included the 2008 version of the manual, while  the contract for the outgoing contractor included the 2002 version.  Despite our attempts to obtain an explanation, TMA-Aurora and TRO- West officials could not clearly explain to us why the two contractors were  not required to follow the same transition guidance.
The different versions of the manual contributed to information gaps for  UnitedHealth, which UnitedHealth officials said was an important factor  that delayed development of their civilian provider network. Specifically,  UnitedHealth had intended to duplicate at least 95 percent of TriWest’s  provider network to create a more seamless transition for beneficiaries,  but to accomplish this, it needed specific information from TriWest that it  expected to receive as part of the transition. UnitedHealth’s transition  guidance stated that the outgoing contractor was required to provide the  incoming contractor with copies of a provider certification file no later than  30 days after contract award to be updated on a monthly basis until the  start of health care delivery. However, TriWest’s transition guidance  only contained a reference to a provider certification file, but did not  define its contents, link it to other provider files specifically mentioned, or  stipulate a time frame for producing it. Instead, TriWest’s guidance stated  more generally that the outgoing contractor was required to provide full  cooperation and support to the incoming contractor and was silent on  when the provider certification file had to be delivered. TriWest did not  provide this file within 30 days, but UnitedHealth and TriWest officials  were able to reach a compromise about the provision of the needed  information. As a result, TriWest provided UnitedHealth with a provider  certification file in late August 2012. However, this was almost a month  later than UnitedHealth expected to receive the information based on its  transition guidance. Furthermore, UnitedHealth officials told us that  because there was no guidance on the transfer of the provider  certification file between incoming and outgoing contractors, they  received a file with nearly 700,000 provider records without any data  definitions. As a result, UnitedHealth officials told us that they had to  spend several months working with the data to make them usable for their  purposes. In this instance, the lack of consistent transition guidance for  the outgoing and incoming contractors affected the incoming contractor’s  ability to meet transition requirements. Federal standards for internal  control note that an agency is responsible for the establishment and  monitoring of performance measures—which would include ensuring  consistent transition guidance.
TMA’s transition guidance to UnitedHealth also lacked sufficient  specificity for some of the seven key focus areas it had identified in the  contract as being important for health care delivery, such as referral  management. TRICARE has a unique referral process that provides  MTFs with the right of first refusal when TRICARE Prime beneficiaries are  referred for specialty care—a practice that helps maximize the use of the  military’s direct care system. As a result, contractors would need to have  a referral management system that could electronically interface with the  referral management systems used by the region’s MTFs to facilitate this  process. However, the TRICARE manuals do not contain guidance for the  contractors on how to establish this interface. In contrast, DOD provides  detailed guidance for establishing interfaces with other, more centralized  DOD systems, such as the guidance for interfacing with the Defense  Enrollment Eligibility Reporting System. A TRO-West official explained  that the lack of specific guidance for a referral management interface is  likely due to the fact that the military services use different referral  management systems, and there is no central DOD system for this  process. At the time, the military services used one of two referral  management systems. UnitedHealth officials told us that they did not  learn about the MTFs’ different systems until a month into the transition  period, which affected their timeliness in developing an automated referral  management system to interface with the systems used by the region’s  MTFs. Additionally, during that time, there were also discussions within  DOD to adopt one of these referral management systems for use across  all of the military services by March 2013. As a result, UnitedHealth  officials told us that they developed a referral management system that  could receive faxed referrals from the MTFs with the expectation that they  would develop an automated interface once more information was  available about which single referral management system DOD would  adopt.
In addition, unlike some other key focus areas, including customer service  (call centers) and claims processing, TMA did not test UnitedHealth’s  referral process prior to health care delivery. According to both TRO-West  and UnitedHealth officials, this testing was not conducted because it was  not required by transition guidance. Both TRO-West and UnitedHealth  officials agreed that such testing would have been beneficial for  determining whether their interface would work at the start of health care  delivery. Providing sufficient specificity for, and testing, this system and  other systems identified as critical for health care delivery would better  align with federal standards for internal control, which recommend that  once an agency has identified areas of risk, such as referral  management, it should analyze those areas, formulating an approach to  manage and mitigate them.
section_title: TMA’s Oversight of UnitedHealth’s Transition Was Insufficient
paragraphs: TMA-Aurora and TRO-West officials provided insufficient oversight of the  West region’s contractor transition because they took limited action in  response to the concerns they identified and did not resolve their  concerns promptly. Specifically, the Contracting Officer and TRO-West  officials provided oversight by following the structured process outlined in  the TMA Transition User Guide. For example, they held specific types of  meetings defined in the guide, such as a “kick-off meeting” with  UnitedHealth officials shortly after the transition period began to discuss  high-level transition strategies; meetings were also held to discuss  interfacing DOD and UnitedHealth computer systems. Additionally, TRO- West officials reviewed UnitedHealth’s weekly transition reports and  participated in weekly meetings with UnitedHealth officials to discuss their  progress in meeting transition requirements. TRO-West officials did not  maintain formal agency records of these weekly meetings, and they could  only provide us with examples of handwritten notes of the discussions  that transpired. Although the notes provide a general outline of topics  discussed, they lack the degree of specificity that would allow us to  determine, without making assumptions, the nature of any concerns  raised by TRO-West officials or how UnitedHealth responded. We  therefore determined that these notes provided insufficient evidence of  the agency’s oversight actions during the transition period.
Due to delays in the awarding of the contract, the Contracting Officer told  us that there were discussions with TRO-West and UnitedHealth officials  as early as July 2012 about whether the transition period should be  extended. According to the Contracting Officer, a decision was ultimately  made in September 2012 to continue with the expected plan, after  UnitedHealth officials assured TMA that they would be able to meet the  transition requirements by the start of health care delivery—an assurance  that UnitedHealth officials confirmed. The Contracting Officer told us that  none of these discussions were documented because the decision not to  extend the transition period did not represent a change from what was  already required. Although TRO-West officials told us that there were no  indications at the time that the health care delivery start date should be  delayed, these officials later told us that they had limited data on which to  base their determination, in part because it was so early in the transition  period. According to federal standards for internal control, sufficient  information should be identified and captured in a time frame that permits  program managers (such as the Contracting Officer or TRO-West  officials) to make effective decisions. Without such pertinent information,  the Contracting Officer and TRO-West officials cannot ensure that they  made an informed determination about whether to extend the transition  period.
Despite not delaying the health care delivery start date, TMA-Aurora and  TRO-West officials told us that they had concerns with UnitedHealth’s  determination of how it would meet, and its progress toward meeting,  several of the transition requirements. TRO-West officials told us that  because the contract is performance-based, they had difficulty holding the  contractor accountable until an actual requirement was missed, and were  only able to express their concerns regarding the progress to  UnitedHealth’s officials. However, TRO-West officials could not provide  sufficient documentation of these conversations with UnitedHealth. In  addition, while we recognize that under a performance-based contract an  agency does not provide detailed instructions to the contractor on how to  meet its requirements, we do not believe that a performance-based  contract diminishes TMA’s responsibility to provide an oversight structure  for managing the contractor’s performance during the transition period. As  we have previously reported, important attributes of a performance-based  contract include measurable performance standards and a quality   The  assurance plan for evaluating the contractor’s performance.contract with UnitedHealth contains these features. Taken together, these  contract provisions created an obligation on the part of the department to  provide sufficient oversight to ensure that the contractor was performing  as required.
Although TRO-West monitored UnitedHealth’s progress and had  concerns about its performance, it did little to resolve them, and could not  always provide documentation of the communication of these concerns to  UnitedHealth. In one instance, TRO-West officials told us that they were  concerned about UnitedHealth’s ability to meet call center requirements  because they were concerned about the staffing numbers that  UnitedHealth had proposed. Specifically, UnitedHealth was required to  hire a sufficient number of staff to answer customer service calls from  beneficiaries and providers within prescribed time frames. However, the  determination of how many staff to hire was ultimately UnitedHealth’s  decision. UnitedHealth officials told us that in order to determine how  many call center staff were needed, they estimated the efficiency of their  call center staff and applied that to an estimated volume of customer  service calls, which was based on TriWest’s daily average plus an  additional 50 percent to factor in a heavier call volume for the start of  health care delivery. UnitedHealth officials told us that they were unable  to obtain staffing numbers from TriWest because the numbers were  proprietary. However, TRO-West officials told us that based on their  comparisons of UnitedHealth’s call center staffing numbers to those of  TriWest’s, they expressed concerns to UnitedHealth about the adequacy  of its call center staffing estimate. TRO-West officials said that  UnitedHealth officials replied that their staffing numbers should be  sufficient, but if needed, they would be able to transfer staff from other  departments to provide coverage. However, UnitedHealth officials did not  recall these discussions in our interviews, and TRO-West officials could  not provide documentation that they took place. TRO-West’s approach  was inconsistent with federal standards for internal control, which state  that management should have a strategy for documenting significant  events, which would include TMA’s communication of concerns about the  contractor’s performance in meeting requirements.
When UnitedHealth missed deadlines for transition requirements, TMA  either did not take, or was slow to take, formal action, and it did not  sufficiently document all of its informal actions. For example, TRO-West  officials told us that on several occasions, starting in November 2012,  they expressed concerns to UnitedHealth that it was not progressing  sufficiently with meeting two of the requirements related to the  development of its provider network. Specifically, UnitedHealth was  required to have both its network of civilian providers (including primary  care managers and other provider specialties) signed to contracts and the  providers’ relevant information entered into its databases 60 days prior to  health care delivery.weekly transition reports on its progress in meeting these requirements,  including assurances to TRO-West officials that they would be met, it did  not ultimately meet the requirements on time. TRO-West officials told us  that after the requirements were not met, they held informal discussions  with UnitedHealth officials during weekly transition meetings to determine  how UnitedHealth would come into compliance. Although TRO-West  officials could not provide sufficient documentation of these discussions,  they were able to provide examples of emails sent to UnitedHealth about  these concerns. According to the Contracting Officer, he did not take  formal action at that time in order to allow TMA-Aurora and TRO-West  officials to exercise other informal mechanisms for resolving the issue.  UnitedHealth did not complete this requirement until June 2013—more  than 4 months late.
Although UnitedHealth provided updates in its  Although UnitedHealth was not always timely in meeting transition  requirements, it did not face any financial penalties as a result. According  to its contract, UnitedHealth was eligible for a transition-in payment of   $10 million to be paid in two increments, with the last payment following  completion of all transition requirements. The Contracting Officer told us that because the contract did not specify that the transition-in payment  was subject to timely completion of the transition requirements, TMA’s  interpretation was that it had to award the payment without regard to  whether the contractor met the transition’s timeliness requirements.  However, our previous work has found that performance-based contracts  should include incentives—either positive or negative, or a combination of  both—to encourage better quality performance. In this instance, TMA  determined in December 2013 that UnitedHealth completed all of its  transition requirements—about 8 months after health care delivery began.  TMA subsequently awarded UnitedHealth the remainder of its transition- in payment in February 2014.
section_title: Inadequate Guidance and Insufficient Oversight during the Contractor Transition Contributed to Health Care Delivery Problems, but Ultimately Led to Greater Oversight
paragraphs: TMA’s inadequate guidance and insufficient oversight of UnitedHealth’s  transition contributed to problems at the start of health care delivery,  which in turn led to the disruption in the continuity of care for some  beneficiaries and potentially cost the department millions of dollars,  according to Army officials. Specifically, inadequate guidance and  insufficient oversight contributed to UnitedHealth’s health care delivery  problems, including those related to its provider database, referral  processing, and call center responsiveness. As a result of these  difficulties, TMA-Aurora and TRO-West officials increased their oversight  of UnitedHealth, took steps to hold the contractor accountable for the  problems that had transpired, and updated the guidance (TMA Transition  User Guide).
Provider database: The different versions of transition guidance and  insufficient oversight contributed to information gaps for UnitedHealth,  which UnitedHealth officials said was an important factor that led to its  difficulties in creating its provider database. UnitedHealth did not have  information for all its civilian network providers entered into its provider  database until June 2013—more than 4 months after the contract  deadline of January 30, 2013. Referrals and claims related to these  providers had to be put on hold until UnitedHealth officials could complete  the data entry process. Additionally, at the start of health care delivery,  UnitedHealth officials told us that they had not entered information on  primary care managers for 113,000 TRICARE Prime beneficiaries, and  some of these beneficiaries had to be temporarily reassigned to a new  primary care manager.information about its primary care managers 3 weeks after the start of  health care delivery, the beneficiaries who had been reassigned were  moved back to their original primary care manager if they requested it.
When UnitedHealth had completed entering  Referral processing: The absence of transition guidance on developing  a referral management interface contributed, in part, to UnitedHealth’s  difficulties in establishing an automated referral management system,  which inconvenienced beneficiaries and was potentially costly for the  government. Because DOD had not decided which referral management  system would be used in the region, UnitedHealth officials told us that  they could only receive faxed referrals from MTFs during the first few  months of health care delivery. This situation contributed to inordinate  processing delays along with a higher-than-expected number of referrals  and staff who were not as efficient as anticipated. Specifically,  UnitedHealth expected its staff to process about 7,000 referrals a day.  Instead, during the first few days of health care delivery, they processed  about 2,500 per day. On May 2, 2013, the director of TMA issued a  temporary waiver of the requirement for TRICARE Prime beneficiaries to  obtain referral authorizations for specialty care. This waiver was initially  effective for the first 6 weeks of health care delivery starting on April 1,  2013, and was subsequently extended through July 2, 2013. Officials  from the Army estimated that these waivers could cost the department  over a million dollars in lost resources because they impeded the right of  first refusal for the MTFs, which potentially resulted in more beneficiaries’  obtaining specialty care from civilian providers, costing the government  additional money. During this time, UnitedHealth hired more staff and  increased its efficiency at processing referrals, and in July 2013—about   4 months after the start of health care delivery—it was able to meet and  exceed the contract requirement of processing 90 percent of referrals  within 2 workdays. While UnitedHealth has not yet met its requirement to  process 100 percent of all referrals within 3 workdays, it is currently  processing 99 percent of referrals within this time frame. In addition,  UnitedHealth officials told us that they currently use both automated and  fax referral systems, depending on the MTF.
Call centers: TMA’s oversight of UnitedHealth’s plans for staffing its call  centers was insufficient, which contributed to a delayed resolution of  UnitedHealth’s performance problems, which lasted until the third month  of health care delivery. Specifically, UnitedHealth experienced difficulties  in answering telephone calls within the required time frame on the first  day of health care delivery. This was based, in part, on insufficient  numbers of call center staff and staff who were not as efficient as  UnitedHealth had anticipated, along with a higher-than-predicted call  volume. For the month of April 2013, UnitedHealth officials expected  about 23,500 calls each day, and they hired the number of staff they  thought they would need to answer 90 percent of these calls (21,150)  within 30 seconds, as required by the contract. However, during the first  month of health care delivery, the daily number of calls received was  about 24,000, and the number of calls answered within the required time  frame ranged from a low of about 2,200 calls (9 percent) to a high of  almost 16,000 calls (67 percent). To meet telephone response time  requirements, UnitedHealth told us that they used staff from its other  departments, subcontracted for additional staff, and hired more staff to  alleviate the call center problems. more call center staff, the staff from other departments and its  subcontractor were returned to their previous responsibilities.  UnitedHealth began meeting its telephone response time requirements in  June 2013.
UnitedHealth subcontracted with several entities to meet the requirements of its  contract. One of those entities, Health Net—the managed care support contractor in the  North region—assisted with the hiring of about 100 staff to help alleviate call center  problems. requests—a written request for action describing missed contractual  requirements—to UnitedHealth on April 5, 2013, for the referral delays  and other issues. This corrective action request cited problems with  referral processing and the entry of information about primary care  managers into UnitedHealth’s provider database. Further, the request  asked that UnitedHealth submit a corrective action plan—a plan  demonstrating how the requirements would be met—as soon as possible.  While the effect of these issues on the call centers was mentioned, the  call center response times were not addressed in this request. However,  the Contracting Officer determined that UnitedHealth’s initial response  was vague and inadequate. As a result, he repeated the corrective action  request process two more times in April 2013. Finally, on May 1, 2013,  UnitedHealth submitted a corrective action plan that was deemed  adequate by the Contracting Officer.
Additionally, based on UnitedHealth’s performance during the first   6 months of health care delivery, TMA-Aurora and TRO-West officials  determined that UnitedHealth would be financially penalized through  performance guarantees and award fees in accordance with contract  requirements.
Performance guarantees: The West region managed care support  contract includes performance guarantees, which are financial penalties  based on the contractor’s performance in meeting certain requirements.  Specifically, if a contractor does not meet requirements in six areas  related to customer service and claims processing, such as answering   90 percent of phone calls from beneficiaries within 30 seconds and  processing 100 percent of claims within 90 days, they are financially  penalized. However, these six areas do not include all of the contract  requirements that TMA identified for the seven key focus areas, such as  referrals and provider network adequacy. Therefore, these guarantees do  not reflect the contractor’s performance in those areas. TMA calculates  whether the contractor meets these guarantees on a quarterly basis. If  the contractor does not meet the requirement, TMA-Aurora uses a  contractually defined formula to determine how much money it will be  penalized. For the first and second quarter, TMA-Aurora officials  determined that UnitedHealth would be penalized about $134,000. A  majority of this penalty resulted from its failure to answer 90 percent of all  customer service calls within the required 30 seconds.
Award fee: The West region managed care support contract also  includes financial incentives through an award fee, which is calculated  twice a year and is based on the contractor’s provision of exceptional  service that is above and beyond contractual requirements. The  determination of the award fee is based on a combination of the results of  satisfaction surveys conducted of MTFs, beneficiaries, and providers on  the contractor’s performance (50 percent of the award fee) and an  evaluation of the performance (the other 50 percent of the award fee). The survey portion of the award fee requires that a contractor must  receive a composite score of 4.5 or higher on a scale of 6 to receive any  portion of the payment. UnitedHealth received a composite score of 4 for  the first 6 months of health care delivery. For the portion of the award fee  based on an evaluation of UnitedHealth’s performance, a panel of TMA  officials, including both TMA-Aurora and TRO-West officials, determined  that there were no occurrences where UnitedHealth’s performance  exceeded contractual requirements. Consequently, the panel  recommended in December 2013 that UnitedHealth should not receive  any portion of the over $7 million potential award fee for the first 6 months  of health care delivery.
The evaluation of the contractor’s performance is conducted by several TMA officials,  including the Contracting Officer, and these officials subjectively evaluate whether  UnitedHealth exceeded contract requirements related to several areas, including  maintaining an efficient referral management. limited because it is not sufficiently specific, and some of these changes  would likely need to be formally incorporated into the managed care  support contracts.
section_title: Conclusions
paragraphs: The transition of managed care support contractors in the West region did  not go smoothly. Many problems arose that negatively affected TRICARE  beneficiaries and potentially resulted in additional costs for DOD.  UnitedHealth was the first new managed care support contractor since  the TRICARE program began, and its transition highlighted numerous  deficiencies in TMA’s guidance and oversight. In particular, insufficient  guidance on transition oversight contributed to a complacent approach by  TRO-West officials, who did little to hold the contractor accountable  during the transition, aside from holding informal conversations that were  not always sufficiently documented. While TRO-West officials also cited  the performance-based contract as a basis for their approach, this type of  contract does not diminish their responsibility to provide an oversight  structure to manage the contractor’s performance in meeting  requirements. Furthermore, TMA failed to ensure that the incoming and  outgoing contractors used the same version of transition guidance,  resulting in information gaps that were left largely to the contractors to  resolve, contributing to UnitedHealth’s delay in meeting transition  requirements related to its provider network. And, while TMA did consider  the possibility of extending the transition period, TRO-West officials cited  a lack of sufficient information to make an informed decision at the time  the decision was being considered. Moreover, the transition guidance for  UnitedHealth also lacked sufficient detail for some requirements,  including the development of a critical interface for managing specialty  care referrals, which was not pretested to ensure that it was fully  operational prior to health care delivery, unlike pretesting that was done  for other system interfaces.
The confluence of these factors led to a particularly problematic start for  health care delivery in TRICARE’s West region, as evidenced by events  such as call center failures and inordinate delays in processing specialty  care referral authorizations. The latter problem necessitated that TMA  waive its authorization requirements for 3 months—a costly workaround  for DOD. Despite these difficulties, approximately 10 months after the  start of health care delivery, TMA paid UnitedHealth the remainder of its  $10 million transition-in payment after UnitedHealth completed its  transition requirements. Eventually, TMA did begin taking steps to hold  the contractor accountable for the problems that surfaced, including the  use of corrective action requests and financial penalties. In an effort to  prevent similar problems in future transitions, TMA also modified the  guidance provided in the TMA Transition User Guide. However, the  effectiveness of this modification is unclear because this guidance is not  sufficiently specific and would likely require contractual changes. Without  adequate guidance, DHA—which assumed oversight responsibility for  TMA in 2013—cannot provide reasonable assurance that its efforts to  oversee future managed care support contract transitions will be effective  in ensuring that contractors are prepared for health care delivery,  including meeting all contract requirements and appropriately serving  their TRICARE beneficiaries.
section_title: Recommendations for Executive Action
paragraphs: To ensure that DHA provides appropriate levels of oversight and  accountability to future managed care support contractor transitions, we  recommend that the Secretary of Defense require the Director of DHA to  review existing transition guidance, and revise as needed, to include  sufficient specificity about  1.  A requirement that all significant oversight communication between  the TRO and the contractor be sufficiently documented, particularly  communication regarding concerns about the contractor’s ability to  meet transition requirements and deadlines;  2.  A requirement that the TROs and Contracting Officers have sufficient  data and information from the contractor at a defined point in time to  make an informed determination about whether to extend the  transition period;  3.  A process for identifying and monitoring all key focus areas, including  the pretesting of key functions and interfaces prior to the start of  health care delivery; and  4.  A course of action for holding the contractor accountable for problems  that transpire in meeting transition requirements or deadlines.
In addition, to ensure that future managed care support contractors have  the information they need to successfully complete transition  requirements and are fully prepared for health care delivery, we  recommend that the Secretary of Defense require the Director of DHA to  5.  Ensure that both the incoming and the outgoing contractors are using  consistent versions of transition guidance;  6.  Revise the contractors’ transition guidance to contain clear definitions  and an appropriate level of specificity, particularly for key focus areas  identified by DHA, such as referral management; and  7.  Conduct a review of whether the transition-in payment should be  designed to incentivize timely completion of transition requirements  and deadlines.
section_title: Agency Comments
paragraphs: We provided a copy of this report to DOD for review and comment. DOD  stated that we made two specific assertions that it wanted to clarify:   (1) that TMA guidance and oversight during the transition period  contributed to issues with health care delivery; and (2) that this is the first  transition to a nonincumbent contractor since the start of the TRICARE  program. In addition, with regard to the recommendations, DOD either  concurred or partially concurred with all of our recommendations. DOD’s  written comments are reprinted in appendix II.
We disagree with DOD’s statement that our report mischaracterized these  two issues. With regard to our statement that TMA guidance and  oversight during the transition period contributed to issues with health  care delivery, DOD states that the report misinterprets two distinctly  separate transition requirements: establishing an adequate provider  network and transferring provider certification files for claims processing.  While we understand that the establishment of an adequate network is  the responsibility of the incoming contractor, our report notes that  UnitedHealth expected to use the provider certification files from the  outgoing contractor to help establish its own provider network. However,  differences in specificity between the two versions of transition guidance  for the incoming and outgoing contractors contributed to the delay of the  transfer of these files. Furthermore, UnitedHealth spent several months  working with the provider certification data they eventually received in  order to make the data usable for its purposes—all of which contributed to  UnitedHealth’s delay in establishing an adequate provider network within  required time frames. Ultimately, UnitedHealth did not meet its  requirement to complete network development and load all of the provider  files 60 days prior to health care delivery. TMA was slow to take action— waiting more than 2 months to send a corrective action request related to  this missed requirement. Because UnitedHealth did not have information  for all its civilian network providers entered into its provider database at  the start of health care delivery, referrals and claims related to these  providers had to be put on hold until UnitedHealth officials could complete  the data entry process, potentially impacting beneficiaries’ access to  health care. Additionally, at the start of health care delivery, UnitedHealth  officials told us that they had not entered information on primary care  managers for 113,000 TRICARE Prime beneficiaries and that some of  these beneficiaries had to be temporarily reassigned to a new primary  care manager until the data entry process was complete. Based on this  evidence, we disagree with DOD’s statement that issues arising from the  transfer of the provider certification files would not impact access to  health care delivery. We also disagree with DOD’s statement that our  finding to the contrary is an assertion rather than an objective assessment  of the facts.
DOD also wanted to clarify our statement that the transition to the West  region’s contractor was the first transition to a nonincumbent contractor  since the start of the TRICARE program. DOD noted that TMA has  successfully transitioned a nonincumbent contractor for the delivery of  health care services on numerous occasions. We believe that DOD  misinterpreted our statement, because for the purposes of our report, we  use the term “contractor” to refer to a managed care support contractor.  Aside from citing MetLife Federal Dental Plan as an example, DOD listed  three other contractors that previously participated in the first generation  of TRICARE managed care support contracts. However, none of them  participated in a TRICARE managed care support contract transition as a  nonincumbent. Therefore, we believe that our statement that  UnitedHealth’s transition in the West region represented the first transition  to a nonincumbent managed care support contractor since the TRICARE  program began is accurate.
In addition, DOD made the point that our report did not recognize  numerous occasions when TMA representatives conducted onsite  readiness reviews and pretesting activities and that it was important to  note the government exacted numerous financial and other sanctions on  UnitedHealth because of its inability to meet contract requirements. Our  report acknowledges that TMA conducted readiness reviews and some  pretesting activities. However, as stated in our report, TMA did not pretest  UnitedHealth’s referral process, which TRO-West officials told us would  have been beneficial for determining whether the referral process would  work prior to health care delivery. Furthermore, we believe it is important  to stress that TMA did not exact any financial or other sanctions during  transition. Specifically, as our report discusses, UnitedHealth was not  always timely in meeting the transition requirements, yet it was not  financially penalized. TMA did not issue any corrective action or  financially related sanctions until after health care delivery. To date, TMA  has provided evidence of two financially related sanctions—performance  guarantees and award fees—which were discussed in our report.  However, these financially related sanctions were for missed  requirements that took place after health care delivery began, and were  not imposed as a result of the missed transition requirements.
DOD concurred or partially concurred with each of our recommendations.  However, DOD disagreed with some of the related findings upon which  these recommendations were based. Additionally, despite its  concurrence, DOD did not always provide details on how it plans to  implement our recommendations. DOD’s specific responses to each of  our recommendations are as follows:
DOD partially concurred with our first recommendation to require that  all significant oversight communication between the TRO and the  contractor be sufficiently documented. While DOD agreed with the  substance of this recommendation, it disagreed with our finding that it  could not provide us with sufficient documentation of the  communication of its concerns to UnitedHealth about its ability to  meet transition and performance requirements and deadlines. DOD  noted that it provided thousands of pages of comprehensive  documentation of both formal and informal correspondence with  UnitedHealth—essentially stating that it is already meeting this  recommendation and implying that no additional action is necessary.  While we agree that DOD was able to provide documentation of its  oversight, not all of it reflected its communication of specific concerns  with UnitedHealth. For example, DOD could not provide  documentation regarding its concerns about the call center staffing  that UnitedHealth had proposed—discussions that UnitedHealth  officials did not recall during our interviews. Further, the  documentation of DOD’s communications with UnitedHealth was  largely dependent upon handwritten notes, which were difficult to  understand without extensive explanation by DOD officials. We  therefore continue to believe that our recommendation remains valid.
DOD concurred with our second recommendation to require that the  TRO and Contracting Officers have sufficient data and information to  make an informed determination about whether to extend the  transition period. DOD's comments indicate that it has already  undertaken steps to implement this action, but did not provide any  time frames for when this activity would be complete.
DOD concurred with our third recommendation to require a process  for the identification and monitoring of all key focus areas, including  the pretesting of key functions. DOD noted in its comments that prior  to our review, DHA began redefining contract requirements for  transition and oversight. DOD added that this effort would include  revised transition requirements for pretesting. In addition, DOD stated  that an independent contractor will be used to assess key systems,  interfaces, and performance.
DOD partially concurred with our fourth recommendation to review  existing transition guidance and revise as needed to include sufficient  specificity and accountability for meeting transition requirements or  deadlines. DOD noted that during its review of existing transition  guidance, it will consider whether specific guidance for the  Contracting Officer is needed. Although DOD stated that contract  administration matters require a certain degree of discretion and  business judgment, we found that the Contracting Officer was  inconsistent in using his authority to take formal action against  UnitedHealth when it missed transition requirements. We therefore  believe that implementing this recommendation is critical to ensure  that future transitions—particularly those of nonincumbent  contractors—proceed without incident.
DOD concurred with our fifth recommendation to ensure that both the  incoming and the outgoing contractors are using consistent versions  of transition guidance. However, DOD also noted in its comments that  the progression from the 2002 manuals to the 2008 manuals did not  create a wholesale change between the two versions and that the use  of the two versions was not a contributory factor in the difficulties that  transpired during the transition. While we agree that the changes in  the manuals were not necessarily wholesale, there was a difference in  the level of specificity, which UnitedHealth said contributed to  problems with its transition. Specifically, the 2008 version noted that  the outgoing contractor was required to provide the incoming  contractor with copies of a provider certification file no later than   30 days after contract award, to be updated on a monthly basis until  the start of health care delivery. However, the 2002 version contained  only a reference to the provider certification file, and did not define its  contents, link it to other provider files specifically mentioned, or  stipulate a time frame for producing it. Further, the 2002 version  stated more generally that the outgoing contractor was required to  provide full cooperation and support to the incoming contractor.  Therefore, we continue to believe that the differences in the two  versions of the manuals created an information gap, which  UnitedHealth officials identified as an important factor that delayed  development of its civilian provider network, and that action to  respond to our recommendation is needed.
DOD concurred with our sixth recommendation that the contractors’  transition guidance should be revised to contain clear definitions and  an appropriate level of specificity, particularly for key focus areas  identified. DOD stated that the key focus areas with the associated  risk for each area should be clearly identified with the appropriate  level of specificity by DHA, while still ensuring that the contract  language is not overly prescriptive to allow contractors to use best  business practices. While we understand DOD’s concern about not  being overly prescriptive, we believe our findings illustrate why having  clear definitions and sufficient specificity is vital to ensuring that future  transitions are successful, and why action is needed.
DOD also concurred with our seventh recommendation to conduct a  review of whether the transition-in payment should be designed to  incentivize timely completion of transition requirements and deadlines.  In addition, DOD stated that the transition requirements should have  both positive and negative incentives for the contractor to achieve  satisfactory progress.
We are sending copies of this report to the Secretary of Defense and  appropriate congressional committees. The report is also available at no  charge on GAO’s website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-7114 or draperd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made key  contributions to this report are listed in appendix III.
section_title: Appendix I: UnitedHealth’s Education and Outreach Efforts during Transition and the First 6 Months of Health Care Delivery
paragraphs: UnitedHealth began its transition to become the West region’s managed  care support contractor on July 3, 2012, with health care delivery starting  on April 1, 2013. As part of its contract, UnitedHealth is required to  conduct outreach and hold briefings for beneficiaries at various military  sites throughout its region and develop a provider education program that  is designed to enhance providers’ awareness of TRICARE. In addition, all  materials used to educate beneficiaries and providers on TRICARE must  be approved by the Department of Defense.
In February 2013, UnitedHealth began providing briefings to beneficiaries  about various aspects of TRICARE, including health coverage information  related to retirement, dependents, and deployment. (See table 2 for  briefings conducted through the first 6 months of health care delivery.) In  addition, UnitedHealth distributed welcome packages to all beneficiary  households in the region, which included a welcome letter and a brochure  produced by the TRICARE Management Activity.
The type of education that UnitedHealth offered to providers depended on  whether the provider was new to UnitedHealth. Providers new to  UnitedHealth received a general orientation about both TRICARE and  UnitedHealth. Existing UnitedHealth providers received an orientation that  included similar materials, but was premised on the providers’ familiarity  with UnitedHealth and its network programs and tools. In addition,  UnitedHealth officials began conducting briefings to educate providers  about TRICARE in February 2013. (See table 3 for briefings conducted  through the first 6 months of health care delivery.)
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Bonnie Anderson, Assistant  Director; Danielle Bernstein; Jacquelyn Hamilton; Jeffrey Mayhew;   Laurie Pachter; and Bill Woods made key contributions to this report.