Defense Health Care: Acquisition Process for TRICARE's Third Generation of Managed Care Support Contracts
Published: 2014-03-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD provides certain health care services through its TRICARE Program, which complements the health care services provided in military treatment facilities. DOD acquires these health care services through MCSCs with private sector companies. As of October 1, 2013, DOD's Defense Health Agency is responsible for awarding, administering, and overseeing TRICARE's MCSCs. Prior to this date TMA handled these duties.
DOD's health care costs have more than doubled from $19 billion in fiscal year 2001 to its fiscal year 2014 budget request of more than $49 billion. Senate Report 112-173, which accompanied a version of the National Defense Authorization Act for Fiscal Year 2013, cited concerns with the growth of DOD's health care costs and identified private sector health care contracts as an area for potential savings and efficiencies.
The Senate report mandated that GAO review DOD's process for acquiring TRICARE's MCSCs. This report examines: (1) TMA's acquisition process to award TRICARE's third generation MCSCs; (2) the extent to which issues were raised in the bid protests involving these MCSCs, including identifying any common themes; and (3) lessons learned from the acquisition process to award these MCSCs and how these lessons may be used in future acquisitions. GAO reviewed relevant federal statutes, regulations, policy documentation, and the bid protest decisions for TRICARE's third generation MCSCs. GAO also interviewed TRICARE officials about the acquisition process and lessons learned.
section_title: What GAO Found
paragraphs: The TRICARE Management Activity (TMA) within the Department of Defense (DOD) used the acquisition process prescribed by federal regulations to acquire health care services for the TRICARE Program through the third generation of TRICARE's managed care support contracts (MCSC). This process included a three-phased contract award process outlined in the figure below.
TMA policy also defined steps for the acquisition process beyond what was required in the federal regulations, including developing additional documentation and obtaining additional approvals from senior TRICARE acquisition officials. For example, peer reviews of the acquisition process are conducted and documented for certain DOD contracts, including TRICARE's MCSCs.
TMA awarded a contract for each TRICARE region (North, South, and West), but challenges (bid protests) to the agency's award decisions were filed by unsuccessful offerors in all three regions. Of the six bid protests filed, three were sustained and three were denied. Following the resolution of the bid protests, the MCSCs in all three regions were awarded to a different offeror than was initially awarded the contract. The offerors who filed the bid protests cited various issues, most frequently TMA's evaluation of proposals. For example, four bid protests challenged TMA's evaluation of offerors' proposed network provider discounts, which are discounts of provider payment rates negotiated by offerors to reduce overall health care costs to the government.
TRICARE acquisition officials said that sustained bid protests and TMA's implementation of corrective actions prompted them to identify lessons learned where changes could be made to improve the acquisition process for subsequent TRICARE MCSCs. Lessons learned included (1) improvements in communication and documentation to increase transparency during the evaluation of proposals and (2) increases to the length of the acquisition process to allow for more time to evaluate proposals and for the transition from one MCSC to another. TRICARE acquisition officials also said that some of these lessons have been applied in other contracting activities; however, they could not confirm which, if any, of these lessons will be incorporated into the acquisition process for the next generation of TRICARE MCSCs, scheduled for 2018.
GAO requested comments from DOD on the draft report, but none were provided.

section_title: Letter
paragraphs: In fiscal year 2012, the Department of Defense (DOD) provided health  care to nearly 9.7 million servicemembers, retirees, and their families  through its TRICARE Program. DOD uses private sector contractors to  develop and maintain the health care provider networks that make up  TRICARE’s purchased care system, which complements the health care  provided by the U.S. military’s health care system—a direct care system  of military treatment facilities. TRICARE is a regionally structured program  that provides health care services and support to beneficiaries in three  U.S. regions: North, South, and West. As of October 1, 2013, DOD’s  Defense Health Agency (DHA) is responsible for awarding, administering,  and overseeing TRICARE’s managed care support contracts (MCSC).  Prior to October 1, 2013, the TRICARE Management Activity (TMA)  handled these responsibilities.sector contractors provide certain health care services for TRICARE   Under TRICARE’s MCSCs, three private  beneficiaries, such as specialty care referrals, enrollment, medical  management, claims processing, customer service, and data collection.
DOD’s health care costs have more than doubled from $19 billion in fiscal  year 2001 to its fiscal year 2014 budget request of $49.4 billion. Congressional Budget Office reported that DOD’s health care costs are  projected to reach $59 billion by 2016 and nearly $92 billion by 2030. An  advisory committee to the Secretary of Defense reported that rising health  costs result from a number of factors that impact DOD, such as increased  utilization of services. Additionally, the cost of health care programs— including those supported by purchased care contracts—is taking up  more of DOD’s budget and may eventually compete with critical defense  acquisition and operational programs, according to a report by a DOD  advisory board.
DOD’s fiscal year budget request of $49.4 billion includes funds for its Defense Health  Program, military medical personnel, military construction, as well as funds set aside for  the Medicare-Eligible Retiree Health Care Fund. The total does not include overseas  contingency operations funds and certain transfers. originally planned for 2015, but now delayed until 2018. This delay  stems from the fact that several bid protests were filed by unsuccessful  offerors challenging the award decisions in connection with the third  generation MCSCs, which had been set to begin on April 1, 2010.agency suspended performance during the resolution of the various  protests, some of which were sustained and resulted in TMA taking  corrective actions.
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 conduct a comprehensive review  of DOD’s health care contracts and acquisition process. The report  raised concerns regarding the growth in DOD’s health care costs and  identified health care contracts with private sector companies under its  TRICARE Program as an area for potential savings and efficiencies. GAO  was directed to review DOD’s process for awarding TRICARE contracts,  including the MCSCs, and the degree to which this process is  transparent. GAO was also asked to assess DOD’s planning activities for  TRICARE’s fourth generation MCSCs and make recommendations for  any improvements that could be incorporated in the acquisition process.  However, as of December 2013, the acquisition process for TRICARE’s  fourth generation MCSCs had just been initiated, according to a  TRICARE program official. Therefore, this review focuses on the  acquisition process for TRICARE’s third generation MCSCs and identifies  potential impacts on the planning and acquisition activities of future  MCSCs. In this report we examine: (1) TMA’s acquisition process to  award TRICARE’s third generation MCSCs; (2) the extent to which issues  were raised in the bid protests involving TRICARE’s third generation  MCSCs, including the identification of any common themes; and   (3) lessons learned, if any, from the acquisition of TRICARE’s third  generation MCSCs and how, if at all, DHA plans to use these lessons in  future contracting activities.
To describe TMA’s acquisition process for awarding TRICARE’s third  generation MCSCs, we reviewed relevant statutes and federal  regulations, including the Federal Acquisition Regulation (FAR) and  Defense Federal Acquisition Regulation Supplement (DFARS).obtained and reviewed DOD and TRICARE policy documents as well as  contract documentation specific to TRICARE’s third generation MCSC  acquisition process. In addition, we interviewed TRICARE acquisition  officials about the process used to acquire services through these  MCSCs. Our analysis focused on TMA’s acquisition process and not the  actual evaluation of proposals, which was the subject of various post- award bid protest decisions related to TRICARE’s third generation  MCSCs.
To describe the issues that were raised in bid protests involving  TRICARE’s third generation MCSCs, we obtained and reviewed the  various post-award bid protest decisions. We analyzed these decisions to  identify the issues raised and whether there were any common themes  across the individual bid protests.
To describe the lessons learned from the acquisition of TRICARE’s third  generation MCSCs and how, if at all, DHA plans to use these lessons in  future contracting activities, we obtained documentation that identified  opportunities for improvements in the acquisition process. We also  conducted interviews with TRICARE acquisition officials to identify what  lessons, if any, were learned from the acquisition process and how this  information was used or may be used in subsequent contracting activities.  To gain additional insights, we reviewed previous GAO work related to  the acquisition process and the implementation of TRICARE’s first and  second generation MCSCs.
We conducted this performance audit from February 2013 to March 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 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: In 1995, DOD’s TMA introduced TRICARE’s purchased care system.  Since then, TMA has implemented three generations of contracts to  support that system. The first generation of TRICARE contracts included  seven MCSCs that covered 11 geographic health care regions  nationwide. In 2001, GAO testified about the acquisition process for  TRICARE’s first generation of MCSCs, reporting that TMA’s approach to  the acquisition process for these contracts resulted in administrative  challenges and contributed to funding shortfalls. In 2002, TMA made  changes to its second generation of TRICARE MCSCs, consolidating the  number of regions from 11 to 3, and reducing the number of MCSCs from  seven to three. TMA also changed the management and oversight of  TRICARE’s purchased care and direct care systems through the  development of a governance plan. The plan established a new, regional  governance structure, including the creation of TRICARE regional offices  to manage the three newly established U.S. regions: North, South, and  West.
TMA retained the three regions for the third generation of TRICARE  MCSCs. In 2008, TMA issued a request for proposals (RFP) and six  offerors submitted seven proposals—two proposals in the North region,  three in the South region, and two in the West region. One offeror  submitted a proposal in both the South and West regions. The RFP  provided that an offeror could not receive an award for more than one of  the three U.S. regions. Therefore, TMA awarded one regional contract to  three different offerors. TMA initially awarded a contract to Aetna  Government Health Plan (Aetna) in the North region, UnitedHealth  Military & Veterans Services (UnitedHealth) in the South region, and  TriWest Healthcare Alliance Corporation (TriWest) in the West region.  Each award decision was protested; protests were filed with GAO in the  North and South regions, and an agency-level protest was filed in the  West region. As a result of sustained decisions in all three regions, TMA  implemented corrective actions to address the recommendations in the  post-award bid protest decisions and announced different awards in all  three regions. Specifically, Health Net Federal Services (Health Net), the  incumbent contractor, was awarded the North region MCSC; Humana  Military Healthcare Services (Humana), also an incumbent contractor,  received the South region MCSC; and UnitedHealth, a non-incumbent  contractor, received the West region MCSC. The award decisions in the  South and West region were protested, but withstood these challenges  when the protests were denied.
section_title: Federal Regulations and TMA Policy Defined the Acquisition Process for TRICARE’s Third Generation MCSCs
paragraphs: Federal regulations—the FAR and DFARS—largely defined the  acquisition process TMA used to obtain health care services through  TRICARE’s third generation MCSCs. This acquisition process included  steps necessary to plan for, develop, and award these contracts. TMA  policy provided further guidance on the acquisition planning and process  steps beyond what was required in the federal regulations. This included  developing additional documentation and obtaining additional approvals  from senior acquisition officials within TMA, as well as conducting peer  reviews of the acquisition process.
subsections: section_title: A Three-Phased Approach Was Used for TMA’s Contract Award Process for TRICARE’s Third Generation MCSCs
paragraphs: TMA’s acquisition staff conducted a three-phased approach to the  contract award process—(1) planning the acquisition, (2) issuing the RFP  and soliciting responses, and (3) awarding the contracts—for TRICARE’s  third generation MCSCs. (See fig. 1.)
Acquisition planning. According to a senior TRICARE acquisition  official, staff in the former TMA Requirements Branch developed  requirements for TRICARE’s third generation MCSCs during the  acquisition planning phase. This senior official explained that the  Requirements Branch was disbanded in 2009 because TMA leadership  officials determined that the responsibility for developing requirements  should be located within the program management office requiring the  services and not TMA’s acquisition office. An official who participated in  the third generation MCSCs’ acquisition process told us that the  Requirements Branch reviewed the contract requirements of the second  generation MCSCs, as well as any modifications, as a starting point for  developing the requirements for the third generation MCSCs.
TRICARE acquisition officials developed one document that combined  the acquisition strategy and plan for the third generation MCSCs. The  document outlined a statement of need that identified why health care  services were being acquired and the objectives to be achieved. The  document also specified activities, such as market research, TMA would  undertake prior to issuing an RFP. Market research was accomplished  by publishing requests for information, which led to meetings between  TMA and companies in the health care industry to collect information and  feedback about the acquisition. TMA conducted further market research  by sharing the draft RFP with companies in the industry to solicit  feedback on the RFP, which included the proposed contract  requirements. TMA also developed a source selection plan, which defined  the evaluation factors and subfactors, and how much weight or  importance should be assigned to each factor and subfactor when making  a source selection. In addition, the plan identified the source selection  team—key individuals participating in the evaluation and source selection  process, as well as the procedures to be followed.
Request for proposals. Following the acquisition planning phase, TMA  issued an RFP. The RFP documented TMA’s requirements, including the  contract type, significant contract dates, pricing arrangements, and the  criteria to be used to assess offerors’ proposals. The RFP also  documented information presented in both the acquisition and the source  selection plans.
Award. Once proposals were received, the proposals were evaluated by  the source selection team consisting of four primary entities: the teams  that comprised the Source Selection Evaluation Board (Evaluation  Board), the group that made up the Source Selection Advisory Council  (Advisory Council), an individual serving as the Source Selection   and an individual serving as the  Authority (Selection Authority),Procuring Contracting Officer (Contracting Officer). Each entity had  specific tasks to complete during the award phase and performed these in  a specific order. (See fig. 2.)
TMA used a process established in the source selection plan to evaluate  offerors’ proposals. To accomplish this, Evaluation Board teams reviewed  offerors’ proposals against the three RFP evaluation factors and their  relevant subfactors. The evaluation factors, in descending order of  importance, were: (1) technical approach, (2) past performance, and   (3) price/cost. These evaluation factors were developed to target critical  aspects of the program for review and evaluation. The Evaluation Board  evaluated each proposal against these factors. Ratings were assigned to  each of the offerors’ proposals under the technical and past performance  evaluation factors, and each offeror’s total proposal price was determined  during the price/cost evaluation. The source selection team used a best- value tradeoff process to compare the relative merits of the offerors’  proposals under the various evaluation factors. The RFP provided that  the technical approach and past performance factors, combined, were  significantly more important than the price/cost factor, which allowed TMA  to accept other than the lowest priced proposal in favor of a technically  superior proposal in the best-value tradeoff decision.
subsections: section_title: Technical Approach Factor
paragraphs: The technical approach factor was used to evaluate the offerors’  proposed approach—how the offeror intended to deliver services to fulfill  contract requirements. Under this factor, the RFP identified seven  evaluation subfactors, including network development and maintenance    (which encompassed the consideration of network provider discounts), and claims processing.rating and the subfactors were equally weighted during the evaluation.  The technical evaluation team’s responsibility was to evaluate how well  an offeror’s proposed approach met or exceeded TMA’s minimum  requirements for each subfactor.
section_title: Past Performance Factor
paragraphs: The past performance factor was used to evaluate an offeror’s ability to  supply services based on a demonstrated record of performance. If an  offeror did not have relevant past performance, the Evaluation Board’s  past performance evaluation team was allowed to consider information  from a predecessor company or parent organization. The subsequent  ratings assigned to past performance considered each offeror’s  demonstrated recent and relevant record of performance to predict the  offeror’s likelihood of success in meeting the current contract  requirements.
section_title: Price/Cost Factor
paragraphs: The price/cost factor was used to evaluate whether the prices and costs  in each offeror’s proposal were reasonable and realistic. In evaluating  proposals under the RFP’s price/cost factor, the Evaluation Board was to  arrive at a total evaluated price for each of the proposals and could also  use the results of a price realism analyses in assessing performance  risks.
An official who participated in the third generation MCSC acquisition  process told us that offerors were able to ask the Contracting Officer  clarifying questions about the RFP and adjust their proposals based on  those discussions. According to this official, after the Contracting Officer  received the final proposal revisions, the Evaluation Board teams  completed their evaluation and the Chair prepared the report. The  Selection Authority considered information provided in the Evaluation  Board report, as well as the recommendations presented in the Advisory  Council report, and then selected the offeror whose proposal represented  the best-value to the government. The final source selection decisions  represented the Selection Authority’s independent judgment, which in  some instances deviated from the judgments made during the underlying  evaluations. For example, in the 2009 award decision in the South region,  the Selection Authority disagreed with the judgment of the Evaluation  Board that the proposal of one offeror was more advantageous than the  awardee’s proposal under one of the technical subfactors, finding instead  that the two proposals were equally advantageous under that subfactor.  After TMA announced the awards to the selected offerors, post-award bid  protests were filed by unsuccessful offerors.
section_title: Two Independent Post- Award Peer Reviews Were Conducted of the Acquisition Process for TRICARE’s Third Generation MCSCs
paragraphs: Peer reviews of the acquisition process for certain contracts became TMA  policy in September 2008 after the issuance of the RFP for TRICARE’s  third generation MCSCs. Following bid protests in 2009, the Selection  Authority requested that, as a best business practice, a peer review of the  acquisition process for these contracts be conducted. The Deputy  Director of Defense Procurement and Acquisition Policy documented in a  memorandum the peer review team’s findings related to the acquisition  process, identifying some of the same issues that were raised in the bid  protests, such as the adequacy of discussions during TMA’s evaluation.  The memorandum also included TMA’s responses to the peer review  team’s concerns, citing whether TMA agreed or disagreed with each  finding and why. If TMA agreed with a finding, it also identified how the  issue would be addressed.
According to a senior TRICARE acquisition official, post-award peer  reviews are expected to be conducted before the exercise of each option- year period for each MCSC. This official explained that two independent  post-award peer reviews of TRICARE’s third generation MCSCs have  been conducted. The first review conducted in March 2012 and the  second in March 2013 found no significant issues or concerns regarding  the performance of any of the MCSC contractors. Subsequent post-award  peer reviews of the third generation MCSCs will be conducted  concurrently on an annual basis prior to the exercise of future option-year  periods. Documentation from the peer reviews is to be included as part of  the acquisition file for TRICARE’s third generation MCSCs.
section_title: Bid Protests of Third Generation MCSC Awards Were Filed in All TRICARE Regions; Proposal Evaluation Was a Common Theme
paragraphs: Bid protests were filed by unsuccessful offerors in all three TRICARE  regions. Most of the bid protests raised issues related to TMA’s  evaluation of offerors’ proposals under the three RFP evaluation factors:  technical approach, past performance, and price/cost.
subsections: section_title: Six Post-Award Bid Protests Were Filed across the Three TRICARE Regions, Three Were Sustained and Three Were Denied
paragraphs: There were six bid protests from offerors across the three TRICARE  regions. Four offerors filed five separate bid protests with GAO, and one  offeror filed an agency-level protest with TMA. Out of the six bid protests  filed across the three TRICARE regions, two protests were sustained by  GAO, one protest was sustained by TMA, and the remaining three  protests were denied by GAO. In response to decisions and  recommendations made in the sustained bid protest decisions, TMA  implemented corrective actions that resulted in new award decisions in  each of the three TRICARE regions. The new award decisions  withstood subsequent bid protest challenges, which were filed in two of  the three TRICARE regions, the South and the West.
section_title: Bid Protests for Each of the MCSC Awards in the Three TRICARE Regions Most Often Cited Issues with TMA’s Evaluation of Proposals
paragraphs: For TRICARE’s third generation MCSCs, the offerors that filed the six bid  protests raised various issues and each protest varied in the number of  issues raised. However, a common theme cited by all offerors was TMA’s  evaluation of proposals under the three evaluation factors: technical  approach, past performance, and price/cost. Of the three evaluation  factors, offerors that filed bid protests most frequently challenged TMA’s  evaluation of proposals under the technical approach factor and, in  particular, the subfactor under which TMA evaluated network provider  discounts. Network provider discounts may result in reduced health care  costs, and TMA was to consider an offeror’s proposed network provider  discounts, if any, during the evaluation of technical proposals under the  network development and maintenance subfactor.
Offerors challenged TMA’s evaluation of network provider discounts in  four protests, two of which were sustained and two of which were denied.  In general, the issue concerned whether TMA properly evaluated offerors’  proposed network provider discounts in evaluating the relative merit of  competing technical proposals under the network development and  maintenance subfactor. Offerors that filed bid protests also raised issues  related to TMA’s evaluation of proposals under the past performance and  price/cost factors. For example, in one bid protest, the offeror that filed  the protest claimed that TMA improperly evaluated the awardee’s past  performance based on the past performance of its affiliated companies.  Additionally, in the same protest, the offeror that filed the bid protest also  alleged that TMA conducted a flawed price realism analysis in evaluating  the awardee’s proposal under the price/cost factor. Offerors that filed bid  protests sometimes raised issues that went beyond TMA’s evaluation of  proposals under specific evaluation factors. Other issues raised by  offerors that filed bid protests included improper business practices, unfair  competitive advantage, conflict of interest, improper source selection,  inadequate discussions to resolve proposal weaknesses, and TMA’s  alleged failure to penalize offerors for not following RFP instructions  regarding right of first refusal, page limits, and Medicare rate  uncertainty. (See table 1.) Appendix I includes additional details on each  of the six bid protests.
section_title: TRICARE Acquisition Officials Identified and Applied Some Lessons Learned from the Third Generation MCSC Acquisition
paragraphs: TRICARE acquisition officials reported they have identified several areas  where changes could be made to improve the acquisition process for  future TRICARE MCSC acquisitions, including those scheduled to be  awarded in 2018. According to TRICARE acquisition officials, preliminary  lessons learned from the third generation acquisition process and  resulting bid protests include (1) improvements in communication and  documentation to increase transparency during the evaluation of the  proposals and (2) increases to the length of the acquisition process to  allow for additional time to evaluate proposals and for the transition from  one MCSC to another.
subsections: section_title: TRICARE Acquisition Officials Learned That Better Communication and Documentation Are Needed During Proposal Evaluation
paragraphs: For TRICARE’s third generation MCSCs, TRICARE acquisition officials  told us the sustained bid protest decisions in all three TRICARE regions  prompted them to take corrective actions and evaluate revised proposals.  According to TRICARE acquisition officials, among the issues they  considered was whether TMA had clearly communicated to offerors  through the RFP how it would evaluate the technical approach factor,  specifically the subfactor related to network provider discounts, and  whether TMA had adequately documented discussions during its  evaluation of the proposals. In response to the sustained bid protests,  TRICARE acquisition officials told us they were able to identify some  preliminary lessons learned, which they implemented during their  evaluation of revised proposals in the South and West regions. TMA  accomplished this in two ways.
Communication: To more clearly communicate how TMA would evaluate  proposals, TMA issued an amended RFP for the South and West regions  and allowed offerors to submit proposal revisions. In the amended RFP,  TMA added language to clarify how network provider discounts would be  considered as part of the technical evaluation and the subsequent best  value analysis.
Documentation: To address the need for adequate documentation of  discussions during the evaluation process, TRICARE acquisition officials  who participated in the MCSC evaluation process told us they improved  their documentation during the reevaluation of proposals in the South and  West regions. Specifically, these officials said that they were more  thorough in their evaluation of the revised proposals and more rigorous in  documenting their discussions. Adequate documentation of discussions  during the evaluation process ensured that the documentation accurately  reflected the evaluation process that occurred and that all evaluations  were conducted in accordance with the RFP.
Additionally, one of these officials told us that TMA had incorporated  these preliminary lessons learned from the third generation MCSC  acquisition process in subsequent acquisitions. For example, TMA  incorporated these preliminary lessons learned into the RFPs for  TRICARE’s three dental plans. Specifically, this official told us that in  drafting the RFP for one of TRICARE’s dental plans—the TRICARE  Dental Program—officials made sure to clearly define how TMA planned  to assess the evaluation factors in the RFP to ensure that potential  offerors understood the scope and magnitude of how the evaluation  factors would be considered for awarding the contract.
section_title: TRICARE Acquisition Officials Believe More Time May Be Needed for the Acquisition Process
paragraphs: TRICARE acquisition officials told us they also learned from the  TRICARE third generation MCSC awards that more time may be required  for the acquisition process. Specifically, officials said that additional time  may be required to conduct proposal evaluations. In addition, officials  said that the transition period may need to be longer to accommodate a  change in contractors.
subsections: section_title: Additional Time to Conduct Proposal Evaluations
paragraphs: TRICARE acquisition officials who participated in the evaluation of  TRICARE’s third generation MCSCs told us that TMA underestimated  how much time was needed to evaluate proposals. Specifically, these  officials told us that more time might be needed to conduct the evaluation  of proposals under the technical approach factor because of the multiple  evaluation subfactors that must also be considered. Out of the three  evaluation factors—technical approach, past performance, and  price/cost—the technical approach factor had the most subfactors.  According to one TRICARE acquisition official, the number of technical  subfactors made it more difficult to conduct the evaluation in the time  allotted. This official suggested that for future MCSC acquisitions, DHA  should consider whether all seven technical approach subfactors are   Furthermore, the official stated that since some of these  necessary.subfactors encompassed required administrative functions of the  TRICARE Program and are laid out in its Operations Manual and other  policy and guidance documents, offerors who are awarded the contract  are expected to perform the required administrative functions.
section_title: Additional Time to Allow for Transition from One MCSC to Another
paragraphs: A senior TRICARE acquisition official told us that DHA is considering  adding 2 or 3 months to the transition-in period for the fourth generation  MCSCs to accommodate delays that may occur when responding to any  bid protests that may be filed and transitioning from one contract to the  next. This official explained that delays in initiating the contract  performance periods for TRICARE’s third generation MCSCs could  potentially increase costs if option periods are added to align the MCSCs’  end dates. The official explained that this is because terms for these  option periods would be negotiated in a non-competitive environment,  which may affect the government’s ability to get the best value in terms of  price and quality.
Other factors can also add time to the transition from one generation of  MCSCs to the next, according to TRICARE acquisition officials. For  example, the start of the performance period for TRICARE’s third  generation MCSC in the West region was delayed because a decision on  the bid protest in that region could not be made until TMA made a new  source selection decision in the South region following a sustained bid  protest. In particular, the agency held UnitedHealth’s July 2009 West  region protest in abeyance while TMA took corrective action following a  sustained bid protest in the South region, where UnitedHealth was also  an offeror. Because the same offeror could not win contract awards in  more than one region, UnitedHealth’s West region protest would have  become moot if it received the South region award following TMA’s  evaluation of the revised proposals. After TMA awarded the South region  contract to Humana in February 2011, UnitedHealth’s agency-level  protest in the West region was revived.
A senior TRICARE acquisition official also told us that transition delays  may affect the beneficiaries who rely upon the services provided by the  MCSC contractor. Specifically, the official said that more time may be  required to transition from an incumbent contractor to a new contractor. A  new contractor may need additional time to implement services for  TRICARE beneficiaries, whereas the incumbent contractor essentially  provides a continuation of services. For example, beneficiaries reported  problems with referral authorization as well as customer service when  UnitedHealth assumed management of the TRICARE West region  contract on April 1, 2013.
Despite the implementation of lessons learned from TRICARE’s third  generation acquisition process and the related bid protests, TRICARE  acquisition officials told us that they cannot confirm which, if any, of these  lessons will be incorporated into the acquisition process for TRICARE’s  fourth generation MCSCs scheduled for 2018. However, these officials  noted that the acquisition process for previous TRICARE MCSCs,  including lessons learned from related bid protests, are generally  considered when initiating the acquisition process for the next generation  of TRICARE MCSCs. DHA began developing an acquisition plan for  TRICARE’s fourth generation MCSCs during the first quarter of fiscal year  2014, according to a TRICARE program official.
section_title: Agency Comments
paragraphs: We requested comments from DOD, but none were provided.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and other interested parties. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at 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 who made key contribution to this  report are listed in appendix II.
section_title: Appendix I: Description of Bid Protests of TRICARE’s Third Generation Managed Care Support Contract Awards
paragraphs: There were six bid protests filed by unsuccessful offerors across the three  TRICARE regions. Out of the six bid protests filed across the three  TRICARE regions, two protests were sustained by GAO, one protest was  sustained by the TRICARE Management Activity (TMA), and the  remaining three protests were denied by GAO. In response to decisions  and recommendations made in the sustained bid protest decisions, TMA  implemented corrective actions that resulted in new award decisions in  each of the three TRICARE regions.subsequent bid protest challenges that were filed in two of the three  TRICARE regions, the South and the West.
The new award decisions withstood  This appendix provides summary information regarding the issues raised  in the six bid protests. With respect to sustained bid protests, we describe  only the issues sustained and not the issues denied, which did not form  the basis for the ultimate decision in the case. In addition, we categorized  protest issues at the level of evaluation factors, which were (1) technical  approach, (2) past performance, and (3) price/cost. In some protests,  unsuccessful offerors raised issues that went beyond the evaluation of  proposals. We used the term “other” to encompass any protest issue that  was not specific to the evaluation of a proposal under one of the three  request for proposal (RFP) evaluation factors.
subsections: section_title: North Region Bid Protests
paragraphs: Health Net Federal Services (Health Net) filed two bid protests  challenging the award to Aetna Government Health Plans (Aetna) in the  North region in July 2009. GAO sustained one of the two protests and  recommended that TMA reevaluate proposals and take other actions  consistent with the bid protest decision.award to Aetna based on GAO’s decision sustaining the protest and  made an award to Health Net, the incumbent contractor, which is  currently performing in the North region. (See fig. 3.)
In the first bid protest, Health Net contended that TMA violated federal  procurement law by improperly disclosing Health Net’s proprietary pricing  information prior to the award of the contract, which, for purposes of this  report, we have classified in the category of “other” protest issues that go  beyond the evaluation of proposals. GAO denied the bid protest as  follows.
Other. Health Net alleged that TMA posted Health Net’s pricing and  proposal information on a public website, and also provided the  information to Congress without disclosing that the information was  competitively sensitive. GAO recognized that serious errors had occurred,  but determined that the Contracting Officer had reasonably concluded  that the competition was not compromised, in part because the website  disclosure did not occur until after final proposals were due. Therefore,  Aetna—Health Net’s competitor—could not have used the information to  its advantage.
subsections: section_title: North Region Bid Protest Two
paragraphs: In the second protest, Health Net successfully challenged the award of  the contract to Aetna on the basis of a number of issues including TMA’s  evaluation of proposals and possible conflicts of interest. GAO sustained  the bid protest based on the following reasons.
Technical approach. Health Net argued that TMA failed in its evaluation  to adequately account for the network provider discounts associated with  its existing TRICARE network. GAO agreed and sustained this protest  issue because TMA had not properly accounted for the potentially  significant cost savings to the government that would result from Health  Net’s proposed network provider discounts.
Past performance. Health Net contended that TMA improperly assigned  the highest past performance rating to Aetna’s proposal based on the  past performance of its affiliated companies. GAO agreed and sustained  this protest issue because TMA did not establish which of these affiliated  companies were involved in the prior contracts or the roles, if any, that  each of the affiliated companies would play in performing the TRICARE  contract. In addition, GAO found that TMA failed to consider the fact that  the contracts previously performed by the affiliates—evaluated as part of  the past performance factor—were not comparable in size to the  TRICARE managed care support contract (MCSC).
Price/cost. Health Net contended that TMA’s evaluation of Aetna’s  proposal and subsequent price realism analysis were flawed. GAO  agreed and sustained this protest issue because TMA did not reasonably  evaluate whether Aetna’s staffing plan, as related to its price/cost  proposal, reflected a lack of technical understanding or proposal risk.  GAO also found that TMA had not reasonably considered whether  Aetna’s proposal to hire a high percentage of incumbent staff at reduced  wages was realistic.
Other. Health Net contended that Aetna gained an unfair competitive  advantage in competing for TRICARE’s MCSC in the North region  because Aetna had retained a former senior TMA official to assist with the  preparation of its proposal. GAO found that the official had access to  proprietary information related to Health Net’s performance of its  incumbent contract and that this created at least the appearance of  impropriety. GAO sustained the protest on the grounds that the  Contracting Officer should have reviewed the matter, but did not do so  because it was not brought to his attention.
section_title: South Region Bid Protests
paragraphs: There were two bid protests in the South region. The first protest was filed  by Humana Military Healthcare Services (Humana) in July 2009  challenging TMA’s award to UnitedHealth Military & Veterans Services  (UnitedHealth). GAO sustained this protest and recommended that TMA  reevaluate proposals consistent with its bid protest decision and make a  new source selection decision. In implementing GAO’s recommendations,  TMA issued an amended RFP and allowed offerors to submit revised  proposals. TMA then reviewed the revised proposals and, based on this  evaluation of revised proposals, awarded the contract to Humana, a  different offeror than was initially awarded the contract. After TMA  announced this award, a second protest was filed in the South region by  UnitedHealth in March 2011. GAO denied this second protest.
Humana—the incumbent contractor—is the current contractor for the  South region. (See fig. 4.)
In its protest, Humana contended that TMA failed in its evaluation to  adequately account for the network provider discounts associated with its  existing TRICARE network. GAO agreed and sustained the protest as  follows.
Technical approach. Humana claimed that TMA, during its technical  evaluation, did not adequately account for the potentially significant cost  savings to the government that would result from Humana’s network  provider discounts. GAO recommended that TMA reevaluate the  proposals consistent with GAO’s decision and make a new source  selection decision.
Following the sustained GAO decision in the Humana bid protest, TMA  amended and reissued the RFP in the South region and provided the  offerors an opportunity to revise their proposals, including providing more  information about network provider discounts. After evaluating the revised  proposals, TMA selected Humana for the contract award.
subsections: section_title: South Region Bid Protest Two
paragraphs: In its protest filed with GAO of TMA’s contract award to Humana,  UnitedHealth raised a number of issues involving TMA’s technical  evaluation of network provider discounts, as well as other issues related  to its analysis of the price/cost evaluation factor and its failure to penalize  offerors for not following RFP instructions. GAO determined that none of  these issues had merit and denied the bid protest for the following  reasons.
Technical approach. UnitedHealth contended that TMA failed to  consider the substantial risk related to Humana’s ability to achieve its  proposed network provider discounts. GAO found that TMA reasonably  evaluated Humana’s proposed network provider discounts and denied  this aspect of UnitedHealth’s protest.
Price/cost. In challenging TMA’s price realism evaluation, UnitedHealth  argued that TMA should have assigned a greater risk level to Humana’s  revised proposal based on Humana’s plan to significantly reduce  underwriting fees during the revision process.reasonably assessed the risk associated with Humana’s revised   GAO found that TMA had  underwriting fees and denied this issue. In addition, UnitedHealth argued  that TMA failed to assign additional risk to Humana’s proposal based on  the reduced staffing level of its claims processing subcontractor. GAO  found that TMA adequately reviewed the subcontractor’s proposal and  factored it into its overall assessment.
Other. UnitedHealth alleged that Humana failed to follow the RFP  requirements regarding the following issues:
Right of first refusal: UnitedHealth argued that Humana’s proposal  deviated from the RFP requirement that military treatment facilities be  given a right of first refusal to patient referrals and that TMA should  have rejected the proposal or deemed it a significant weakness. GAO  declined to consider UnitedHealth’s claim that Humana improperly  deviated from these requirements because UnitedHealth had made a  contradictory argument in the first South region bid protest.
Page limits: UnitedHealth contended that Humana failed to adhere to  a page limit on proposal revisions. GAO denied UnitedHealth’s  argument, finding that Humana met the page limit in revisions to its  technical proposal.
Medicare rates: UnitedHealth alleged that Humana did not comply  with an RFP requirement to acknowledge and discuss the linkage  between TRICARE reimbursement rates and Medicare rates, which  are uncertain and subject to change. In denying this issue, GAO  rejected UnitedHealth’s interpretation of the RFP as requiring Humana  to assume that Medicare rates would decline.
section_title: West Region Bid Protests
paragraphs: There were two bid protests in the West region. The first protest was an  agency-level protest filed by UnitedHealth in July 2009 challenging the  award to TriWest Healthcare Alliance Corporation (TriWest). This protest  was sustained and included a recommendation that TMA reevaluate  proposals and make a new source selection decision that was reasonable  and consistent with the RFP. In implementing this recommendation, TMA  issued an amended RFP and allowed offerors to submit revised  proposals. TMA then reviewed the revised proposals and, based on this  evaluation of revised proposals, awarded the contract to UnitedHealth, a  different offeror than was initially awarded the contract. After TMA  announced the new award, a second West region protest was filed by  TriWest in March 2012. GAO denied the second protest and UnitedHealth  is the current contractor for the West region. (See fig. 5).
In the first West region bid protest, an agency-level protest filed with the  Contracting Officer, UnitedHealth claimed that TMA did not conduct  meaningful discussions that would have enabled UnitedHealth to correct  a documented weakness in its technical proposal and that this weakness  unreasonably tipped the source selection decision in favor of TriWest. For  purposes of this report, we have classified this issue as “other” rather  than a proposal evaluation issue, which TMA sustained as follows.
Other. UnitedHealth alleged that TMA failed to conduct meaningful  discussions to alert UnitedHealth to a weakness assigned to its proposal  under one of the technical approach evaluation subfactors involving  claims processing. Under this subfactor, TMA had assessed a weakness  in UnitedHealth’s plan for dealing with claims submitted by providers that  were outside the West region. After reviewing the record of discussions  between TMA and UnitedHealth during the contract evaluation process,  TMA’s Contracting Officer determined that TMA had not conducted  meaningful discussions in the area of claims processing. In addition to  TMA’s failure to identify the proposal weakness through meaningful  discussions, the Contracting Officer also found that the weakness was so  minor it should not have been the tipping factor in selecting TriWest for  the award. As a result, the Contracting Officer sustained the protest.
Following the sustained agency-level decision in the UnitedHealth bid  protest, TMA issued a series of amendments to the RFP in the West  region and allowed offerors to submit revised proposals. After evaluating  the revised proposals, TMA selected UnitedHealth for the contract award.
subsections: section_title: West Region Bid Protest Two
paragraphs: After the award was made to UnitedHealth in the West region, TriWest— the other remaining competitor—filed a protest with GAO. TriWest raised  a number of issues involving TMA’s evaluation of proposals and source  selection decision. GAO determined that none of these issues had merit  and denied the bid protest for the following reasons.
Technical approach. TriWest contended that TMA did not give its  proposal sufficient credit for its network provider discounts, and that the  discounts offered by UnitedHealth were overstated. GAO found no basis  to question TMA’s evaluation of either offerors’ network provider  discounts.
Past performance. TriWest challenged the past performance rating TMA  assigned to UnitedHealth on several grounds, including the relevance of  its past work and the scope of the past performance information TMA  considered. TriWest also challenged its own past performance rating.  GAO found no merit to these allegations.
Price/cost. TriWest asserted that TMA’s evaluation of UnitedHealth’s  labor rates and subsequent price realism analysis was based on outdated  information. GAO concluded that TMA conducted a proper price realism  analysis of UnitedHealth’s proposal.
Other. TriWest argued that TMA’s Selection Authority gave undue weight  to some of the evaluation subfactors, even though the RFP said that all  subfactors would be weighted equally. GAO found, however, that the  Selection Authority properly relied on those subfactors thought to be key  discriminators in selecting UnitedHealth for the award.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact name above, Marcia A. Mann, Assistant  Director; Jacob L. Beier; Kathryn A. Black; Sarah C. Cornetto;   Victoria C. Klepacz; Deitra H. Lee; Laurie L. Pachter; and   William T. Woods made key contributions to this report.