Defense Health Care: TRICARE Dental Services Contracts' Requirements and Structure
Published: 2014-06-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD offers comprehensive health care coverage to millions of beneficiaries through TRICARE, a system of health care that DOD purchases from private insurers to supplement the health care that DOD provides through its military and dental treatment facilities (DTF). Purchased dental services are provided through separate programs for different groups of beneficiaries: (1) the ADDP provides dental care to active duty servicemembers who do not have ready access to a DTF; (2) the TDP provides dental insurance to eligible dependents of active duty servicemembers, and to National Guard and Reserve members and their dependents; and (3) the TRDP provides dental insurance to retired uniformed service members and their dependents. DHA is responsible for awarding, administering, and overseeing contracts with private insurers for these programs.
Senate Report 112-173, which accompanied the Senate Committee on Armed Services' version of the National Defense Authorization Act for fiscal year 2013, mandated that GAO review DOD's private sector care contracts, including its contracts for dental services. GAO examined (1) how DHA developed the requirements for its current dental services contracts and (2) the reasons for DHA's use of separate contracts for different beneficiary groups. GAO reviewed relevant laws, regulations, and DOD contracts and acquisition planning documents. GAO also interviewed DHA officials and other stakeholders.
GAO made no recommendations.
section_title: What GAO Found
paragraphs: To develop requirements for its current dental services contracts, officials from the Department of Defense's (DOD) Defense Health Agency (DHA) analyzed market research, data from contractors' past performance, legislation, independent cost estimates, and other information. DHA officials used this information to align the contracts' requirements with contract goals to deliver high quality dental services in a cost effective manner and to facilitate access to care.
Market research: DHA officials gathered information through market research and analyzed it to determine the capabilities within the dental services market to satisfy the agency's needs.
Performance monitoring: DHA officials analyzed information about contractors' past performance, including claims payment data, to assess and revise contract requirements.
Legal requirements: DHA officials reviewed laws relevant to each dental services contract to identify changes required by statute.
Independent cost estimates: DHA officials reviewed cost estimates for new benefit requirements they were considering for the TRICARE Retiree Dental Program (TRDP) and TRICARE Dental Program (TDP) contracts to assess cost efficiency.
Other sources of information: DHA officials reviewed lessons learned from previous procurements, current dental services contract requirements, and dental best practices and changes in the professional practice of dentistry.
DHA uses separate contracts for different beneficiary groups in part because the programs that serve them are funded differently. The TRDP contract is separate from the TRICARE Active Duty Dental Program (ADDP) and the TDP contracts because the government does not contribute any funds for the TRDP, but does contribute funds for the ADDP and TDP. To provide assurance that government funds are not expended for the TRDP, contractors said they would have to operate the programs separately. As a result, DHA officials determined that there would be minimal cost savings from combining contracts. Differences in how the ADDP and TDP programs are funded also influenced DHA's decision to use separate contracts for these programs. DOD pays all costs for necessary care provided to active duty servicemembers through the ADDP. In contrast, the TDP is an insurance program: DOD and TDP beneficiaries share in the costs of premiums, which are paid to the contractor; the contractor is at risk for payment to providers. DHA officials concluded that the disadvantages of combining these two contracts outweighed the potential advantages. Other factors that contributed to DHA's decision to use separate contracts for different beneficiary groups included differences in program purposes, dental services, and network access standards.
In comments on a draft of this report, DOD agreed with its findings and provided a technical comment, which was incorporated.

section_title: Letter
paragraphs: In fiscal year 2012, the Department of Defense’s (DOD) military health  system offered comprehensive health care coverage to nearly 9.7 million  eligible beneficiaries through its TRICARE programs, with more than   4.6 million beneficiaries enrolled for TRICARE dental services. TRICARE  is a system of health care that DOD purchases from private insurers to  supplement the health care that DOD provides through its military  treatment facilities and dental treatment facilities (DTF). The purchased  dental services are provided through separate programs for different  groups of beneficiaries: (1) the TRICARE Active Duty Dental Program  (ADDP), which provides dental care to active duty servicemembers who  require care not available from a DTF or who do not have ready access to  a DTF; (2) the TRICARE Dental Program (TDP), which provides dental  insurance to eligible dependents of active duty servicemembers, and to  National Guard and Reserve members and their dependents; and (3) the  TRICARE Retiree Dental Program (TRDP), which provides dental  insurance to retired uniformed servicemembers and their dependents.  DOD’s Defense Health Agency (DHA) is responsible for awarding,  administering, and overseeing contracts with private insurers for these  programs.
Senate Report No. 112-173, which accompanied the Senate Committee  on Armed Services’ version of the National Defense Authorization Act  (NDAA) for fiscal year 2013, mandated that we review DOD’s private  sector health care contracts, including its contracts for dental services.  This report describes:  1.  How DHA developed the requirements for its current dental services  contracts.  2.  The reasons for DHA’s use of separate contracts for different  beneficiary groups.
To address these objectives, we reviewed relevant laws, regulations, and  DOD documents. Specifically, we reviewed DOD documents related to  the acquisition of dental services—including the TRICARE dental services  contracts, acquisition plans and strategies, documentation of market  research, and requests for proposals (RFP)—and compared them to  requirements for acquisition planning included in the Federal Acquisition  Regulation (FAR) and the Defense Federal Acquisition Regulation  Supplement (DFARS). In addition, we interviewed DHA officials to learn  more about these programs. We also interviewed dental service  contractors and other stakeholders including the American Dental  Association, the Military Officers Association of America, the Reserve  Officers Association, and the National Military Family Association, to  obtain their perspectives on DOD’s approach to the acquisition of dental  services.
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: Dental care is a key component of the health care services provided by  the military to active duty servicemembers, and a key benefit provided to  those who are eligible to enroll for health care coverage through  TRICARE. DHA’s TRICARE Dental Care Office administers and oversees  the TRICARE dental care programs.
subsections: section_title: TRICARE Dental Care Programs
subsections: section_title: The TRICARE Active Duty Dental Program
paragraphs: The ADDP supplements the dental services available to active duty  servicemembers through DTFs with the goal of maintaining readiness for  deployment. Active duty servicemembers are required to have a dental  examination annually, during which their dental readiness is assessed.  Dental readiness is a prerequisite for deployment and must be maintained  among servicemembers who have been deployed.
Active duty servicemembers may obtain necessary dental care at no cost  to them at a DTF or through the ADDP. The majority of active duty  servicemembers’ dental care is provided in DTFs, which are staffed with  general dentists and, in some cases, dental specialists. If a necessary  service cannot be provided in a timely way through an accessible DTF,  the servicemember may obtain dental care from a private dentist through  the ADDP. To facilitate reasonable access to care, the ADDP includes a  network of dental care providers throughout the United States and its  territories.
ADDP is not an insurance program, and active duty servicemembers do  not pay premiums for their dental care, do not share in the costs of the  care, and do not face any annual or lifetime maximums on the cost of that  care. Prior to establishing the ADDP, DOD paid the full cost of necessary  dental care provided to active duty servicemembers who were referred to  private dentists, and the prices for such privately provided dental services  were uncontrolled. By negotiating standard prices for dental services with  a private insurance carrier, the ADDP was intended to contain the costs  of providing necessary care to active duty servicemembers.
section_title: The TRICARE Dental Program
paragraphs: The TDP is a dental insurance program that is available to dependents of  active duty servicemembers, and to members of the National Guard and  Reserve and their dependents.sharing premiums, certain procedure fees, and costs above annual and  lifetime maximums. Enrollees’ share of premiums varies with the status of  the enrollee. For example, DOD pays:   Enrollees are responsible for cost-
100 percent of the premiums of survivors of active duty  servicemembers who died while on active duty and to eligible  dependents of certain Reserve members;
Up to 60 percent of the premiums of the dependents of active duty  service members and of certain Reserve members; and
0 percent of the premiums of certain Reserve members who are not  on active duty and their dependents.
section_title: The TRICARE Retiree Dental Program
paragraphs: The TRDP is a dental insurance program that is available to retired  uniformed service members and their dependents. DOD does not  contribute to paying the costs of this program. Enrollees are responsible  for the full premium, any cost-sharing fees, and costs above the annual  and lifetime maximums.
For information about the contracts for these programs, see table 1.
section_title: Dental Services Acquisition Process
paragraphs: The acquisition process for DHA’s dental services contracts includes  three main phases, each of which are governed by federal and  department-level requirements. The phases include (1) acquisition  planning, (2) RFP, and (3) award. (See fig. 1.)
Acquisition Planning. Federal regulations require agencies to perform  acquisition planning activities for all contracts to ensure that the  government meets its needs in the most effective, economical, and timely  manner possible. In the acquisition planning phase, DHA officials are to  develop a strategy and plan to define and fulfill contract requirements in a  timely manner and at a reasonable cost. Federal regulations also require  that acquisition planning include market research, which can involve the  development and use of requests for information (RFI). An internal  working group consisting of a dental program manager, contracting  officer, contracting officer’s representatives, and a requirements specialist  review information gathered during the acquisition planning process to  determine contract requirements, according to DHA officials.
RFP. In the RFP phase, DHA officials issue the RFP and receive  proposals.
Award. In the award phase, DHA officials are responsible for evaluating  the proposals and awarding the contract to the offeror presenting the best  value to the government based on a combination of technical, cost, and  performance-based factors.
section_title: Performance Monitoring
paragraphs: After the contract is awarded, the contracting officer’s representative is  responsible for the day-to-day monitoring of contractor activities to ensure  that the services are delivered in accordance with the contract’s  performance standards. Each dental service contract includes quality  assurance standards for provider access, claims processing, and  customer service (telephone coverage and correspondence timeliness)  against which the contractor’s performance is assessed. Contractors are  required to meet these standards. Although DHA officials use a variety of  methods to monitor contractors’ performance, the primary method of  monitoring performance is through monthly reports submitted by each  contractor to DHA.
section_title: DHA Analyzed Market Research, Performance Data, and Other Information in Developing Dental Services Contract Requirements
paragraphs: To develop requirements for each of its current dental services contracts,  DHA officials analyzed market research, data from contractors’ past  performance, legislation, independent cost estimates, and other  information. DHA officials used this information to align the contracts’  requirements with contract goals to deliver high quality dental services in  a cost effective manner, and to facilitate access to care.
Market Research. As part of its development of contract requirements,  DHA officials gathered information through market research and analyzed  it to determine the capabilities within the dental services market to satisfy  the agency’s needs. DHA’s market research included soliciting  information from current and potential dental services contractors. To do  this, DHA officials issued RFIs and draft RFPs for comment. These documents included questions related to potential benefit changes—such  as how the offeror would implement a specific benefit—and potential data  requirements—such as how the offeror would submit required data to  DHA. In addition to RFIs and draft RFPs, DHA’s market research  activities included one-on-one meetings with dental services  contractors.
DHA officials used information from these market research activities to  revise contract requirements. For example, according to DHA officials,  feedback from contractors indicated that DOD’s contract requirements  related to information security were costing dental contractors (and DOD)  a substantial amount of money. Partly as a result of contractors’  feedback, DHA determined that it would be more economical for  contractors to comply with the information security standards used in the  commercial sector, according to these officials. In all three new contracts,  DHA officials therefore required contractors to comply with commercial  information security requirements instead of those developed by DOD.
DHA officials also used market research to determine the technical  feasibility of potential contract requirements. For example, after  encountering delays in treatment preauthorization decisions due to poor  quality radiographs (commonly known as x-rays), the RFI that DHA  issued for the ADDP contract included questions to determine the  feasibility of the electronic submission of radiographs. According to DHA  officials, dental technology has progressed to allow for easy electronic  submission of this data, resulting in better radiograph quality. Partly as a  result of information collected through the RFI, DHA officials incorporated  a requirement into the new ADDP contract for the contractor to submit  radiographs electronically when requesting pretreatment authorization  from DHA. This requirement was intended to increase the quality of the  diagnostic information and thus DHA’s efficiency in making  preauthorization decisions.
Performance Monitoring. DHA officials analyzed information about  contractors’ past performance, including contractors’ monthly reports and  claims payment data, to assess and revise contract requirements for  future contractors. DHA uses a variety of methods to monitor  performance, primarily relying on their review of monthly reports  submitted by each contractor to DHA, which reflect how well the  contractor is performing against the performance standards. They use  this information to assess and revise requirements for each future dental  services contract. For example, according to DHA officials, before issuing  the RFP for the current TRDP contract, DHA officials’ review of the then  current TRDP contractor’s performance against the existing contract’s  network access standard indicated that the contractor consistently  exceeded the standard. As a result, DHA raised the network access  standard in the new TRDP contract from 90 to 99 percent, thus requiring  that 99 percent of enrollees living within the United States, District of  Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands have access to  a network general dentist within a specified distance of their primary  residence.
DHA officials also used other performance monitoring information, such  as claims payment data submitted by contractors, when developing  contract requirements. For example, DHA officials’ review of the ADDP  contractor’s claims payment data confirmed reports they received from  DTFs that some servicemembers were being treated twice (and DHA paid  more than they would have otherwise) for the same dental problem  because they were treated by general dentists, not dental specialists, and  the initial treatment was not successful, according to DHA officials. Partly  as a result of their review of this information, DHA officials incorporated a  new requirement in the new ADDP contract that requires that 90 percent  of all DTF-referred endodontic procedures (such as root canals) or oral  surgeries be completed by an endodontist or oral surgeon, respectively.
Legal requirements. DHA officials reviewed laws relevant to each dental  services contract to identify changes required by statute. DHA officials  used the information to determine whether any changes to the benefit or  eligibility structures of the contracts would be required. For example, DHA  added a survivor benefit to the TDP contract as a result of a legislative  change. In addition, the Transition Assistance Management Program,  which provides 180 days of premium-free transitional health care benefits  after regular TRICARE benefits end, was added to the ADDP contract as  a result of a legislative change.
Independent Cost Estimates. DHA officials reviewed independent cost  estimates for new benefit requirements they were considering to assess  cost efficiency. Specifically, prior to incorporating new benefit  requirements into the TRDP and TDP contracts, DHA obtained and  reviewed cost estimates from a private consulting firm to determine the  impact of these benefits on enrollees’ monthly premiums. For example,  DHA requested cost estimates for increasing the TDP contract’s  maximum lifetime orthodontic benefit requirement from $1,500 to $1,750  and from $1,500 to $2,000. The estimates indicated that monthly  premiums would increase 65 cents and $1.30, respectively. Based in part  on the cost estimate, DHA increased the benefit requirement in the final  TDP contract so that the contractor must provide coverage for benefits up  to $1,750. According to DHA officials, they do not incorporate benefits if  doing so would result in large increases in monthly premiums.
Other Sources of Information. Other sources of information DHA  officials reviewed prior to determining whether to add, change, or  eliminate requirements from their dental service contracts included
Lessons learned from previous procurements for other health  services. We previously reported that DHA incorporated lessons  learned into the RFP for the dental services contracts as a result of  challenges to DHA’s contract award decisions for certain managed  care support contracts. Specifically, in drafting the RFP for the TDP  contract, officials more clearly defined how DHA officials planned to  assess the evaluation factors when awarding the contract.
Current dental services contract requirements. DHA officials told us  that they review current contract requirements and solicit feedback on  them from stakeholders, including officials from various branches of  the military and organizations representing beneficiaries, before each  new solicitation. For example, DHA officials conducted a forum with  military services officials through which they identified potential new  requirements for the ADDP contract, including a referral tracking  system that would indicate authorized care that was not completed  and thereby allow military commanders ready access to information  about servicemembers’ dental readiness. As a result of this and other  information they reviewed, the new ADDP contract required the  contractor to develop a referral tracking system and train DHA staff on  its use.
Dental best practices and changes in the professional practice of  dentistry. DHA officials review industry best practices and changes in  the practice of dentistry to determine new contract requirements. For  example, when developing new benefits for the current TDP contract,  DHA officials researched common dental insurance benefits and best  practices and solicited feedback from the American Dental  Association’s Council on Government Affairs. In addition, DHA  officials told us that they used their knowledge of changes in the field  of dentistry, including dentistry’s increased use of digital technology,  to help them identify the electronic submission of radiographs as a  potential solution to the previously discussed problem of poor  radiograph quality.
section_title: DHA Uses Separate Contracts Because of Funding Differences and Other Factors
paragraphs: DHA uses separate contracts for different beneficiary groups, in part,  because the programs that serve them are funded differently. For  example, the TRDP contract is separate from the ADDP and the TDP  contracts because the government does not contribute any funds for the  TRDP, but does contribute funds for the ADDP and TDP. Other factors  that contributed to DHA’s decision to use separate contracts for its  different beneficiary groups included differences between programs, such  as differences in their purposes, covered dental services, and network  access standards.
subsections: section_title: TRDP Contract
paragraphs: To provide assurance that government funds are not expended for the  TRDP, the administrative costs associated with the TRDP must be kept  separate from the administrative costs associated with government- funded programs. DHA officials told us that they discussed this issue with  potential contractors, who said that they would have to operate the  programs separately. DHA officials determined that there would be  minimal cost savings or efficiencies from combining contracts under these  circumstances.
Because the TRDP is not directly supported by DOD funds, DHA is  exploring the possibility of shifting the option for military retirees to  purchase dental insurance, which is currently provided through the TRDP,  to the Federal Employee Dental and Vision Insurance Program (FEDVIP),  which is administered by the Office of Personnel Management (OPM).Unlike the TRDP, the FEDVIP allows enrollees to select from among  several plan options. DHA and OPM are in the preliminary process of  determining the viability of this plan. DHA officials said that this option has  both advantages and disadvantages. The primary advantages would  include:  lowering the workload of staff within the TRICARE Dental Care Office,  thereby allowing them to devote more of their time to administering  and overseeing the remaining two programs; and allowing retirees greater flexibility to choose among insurance plans  that differ in their premiums and coverage options.
The primary disadvantages of shifting the option to purchase dental  insurance to the FEDVIP would include:  the loss, for retirees, of the increased ease in use that results from  similarities that have been built into the various TRICARE programs,  such as similarities across programs in educational materials; potentially higher premiums if the enrollee selects a plan with more  extensive dental benefits; and potential resistance to the change among military retirees.
DHA officials told us that it is too soon to determine whether it would be  possible to shift the TRDP to the FEDVIP. If it is found to be a viable  option, legislative action would be necessary for OPM to open the  FEDVIP to military retirees and for DOD to terminate the TRDP.
section_title: ADDP and TDP Contracts
paragraphs: Among other factors, differences in how the ADDP and TDP programs  are funded also influenced DHA’s decision to use separate contracts for  these programs. For example, DOD pays all costs for necessary care  provided to active duty servicemembers through the ADDP upon receipt  of invoices for individually priced services. In contrast, the TDP is an  insurance program: DOD and TDP beneficiaries share in the costs of  premiums, which are paid to the contractor; and the contractor is at risk  for payment to providers. Thus, unlike the ADDP contractor, the TDP  contractor bears the risk of loss if total costs through the program are  greater than predicted. (If total costs are lower than predicted, the  contractor would earn a larger profit than expected.)
DHA officials told us that they consulted with potential contractors to  identify advantages and disadvantages of merging the ADDP and TDP  contracts and they concluded that the disadvantages of combining these  two contracts, which are largely due to the differences in funding,  outweighed the potential advantages. The potential advantages of  combining the contracts that DHA officials and contractors identified  included: enhanced continuity of care when individuals switch from reserve to  fewer instances in which two contractors would need to work together  to reconcile payments when an error has been made about whether  someone is on active or reserve duty because a single contractor  would be responsible for both programs; greater leverage in fee negotiations because the pool of potential  enrollees would be larger; and  slight gains in the efficiency of contract administration, particularly for  monitoring contractors’ performance, thereby allowing TRICARE  Dental Care Office staff more time to devote to their other  responsibilities.
The potential disadvantages of combining the contracts that DHA officials  and contractors identified included: a reduction in competition if carriers do not want to participate in one  or the other program, do not want to manage two different programs  simultaneously under the same contract, or do not want to undertake  a contract of the resultant size; greater difficulty in selecting the best contractor to award the contract,  as one offer may be a better match for the ADDP requirements and  another offer a better match for the TDP requirements;  the potential for confusion among beneficiaries, dentists, and  contractor staff because of differences between the programs (such  as different benefits and payment requirements); and  the potential for a compromise on quality if the contractor is not able  to meet the requirements of both programs simultaneously and well.  In the past, there was an interval during which a single contractor held  both the ADDP and TDP contracts, and DHA officials told us that  there were problems with this arrangement, including obstacles to  care; operational challenges; and confusion among beneficiaries, the  contractor, and the military DTFs. They said that these problems  negatively affected both the delivery of dental care and the reputation  of the military health system.
Having just awarded the ADDP contract, DHA officials stated that they  are not exploring options for combining these contracts. They noted that  the government would have to either terminate the ADDP contract early  or sole-source the TDP contract to extend it until the ADDP contract  expires. They also stated that having to re-solicit a contract would be  inefficient.
section_title: Agency Comments
paragraphs: We requested comments on a draft of this product from DOD. In its  written comments, reproduced in appendix I, DOD concurred with the  findings of the report and stated that the review provided a critical  examination of DOD’s contracting initiatives supporting the ADDP, TDP,  and TRDP. DOD also provided a technical comment, which was  incorporated.
We are sending copies of this report to appropriate congressional  committees, the Secretary of Defense, the Assistant Secretary of Defense  (Health Affairs), and other interested parties. The report also will be  available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dsouzav@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 who made major contributions to  this report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Defense
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, key contributors to this report  were Kristi Peterson, Assistant Director; Kristen Joan Anderson;  Jacquelyn Hamilton; Jennel Lockley; and Drew Long.