For the T-2017 contracts, DHA consolidated its TRICARE regions from three regions (North, South, and West) to two regions (East and West). Humana Government Business is the managed care support contractor for the East Region, and Health Net Federal Services is the managed care support contractor for the West Region. Health care delivery under the T-2017 contracts began on January 1, 2018. DHA expects the costs of the two contracts to total approximately $58 billion over a 5-year performance period, which is scheduled to end on December 31, 2022. The primary responsibilities of the managed care support contractors include the following: developing civilian provider networks, which include hospitals and processing referrals and authorizations for beneficiaries to receive processing health care claims; providing comprehensive, readily accessible customer services for beneficiaries and providers; and establishing and maintaining a medical management program that includes requirements in the TRICARE Operations Manual. In addition, DHA officials told us that they have begun their planning activities for the fifth generation of TRICARE contracts, referred to as the T-5 contracts. If DHA exercises all option years for the T-2017 contracts, health care delivery under the T-5 contracts is expected to begin in 2023. DHA’s acquisition process for the T-2017 contracts consisted of four steps: (1) planning the acquisition, (2) issuing the Request for Proposals (RFP) and soliciting responses, (3) awarding the contracts, and (4) post award activities (see figure 1). 1. Acquisition planning. DHA defined the contract requirements—the work to be performed by the contractor—and developed an acquisition plan to meet those requirements. The T-2017 program manager and contracting officer developed key acquisition documents—including the T-2017 Acquisition Strategy and the Acquisition Plan—and conducted market research. The T-2017 Acquisition Strategy provides a high-level description of the milestones in the acquisition process and how those milestones will be achieved. The T-2017 Acquisition Plan outlines the specific actions necessary to execute the approach outlined in the approved acquisition strategy. 2. Request for proposals. DHA issued an RFP that documented the requirements for T-2017—including the contract type, significant contract dates, pricing arrangements, and the criteria to be used to assess offerors’ proposals. 3. Award. DHA established a source selection team to evaluate the proposals received in response to the RFP. The source selection authority selects the winning proposals using a best value tradeoff process after considering reports written by other members of the source selection team. 4. Post-Award Activities. DHA provides a 12-month transition period between its outgoing and incoming contractors to ensure that its incoming contractors are prepared for their new responsibilities. The transition period for the T-2017 contracts began on January 1, 2017, and ended on December 31, 2017. The incoming contractors assumed full responsibility for health care delivery on January 1, 2018. The NDAA 2017 required a number of changes to the TRICARE program through its contracts. Specifically, section 705(a) of the NDAA 2017 required DOD to develop and implement value-based incentive programs in its contracts to help improve the quality of health care services provided to eligible TRICARE beneficiaries by rewarding civilian providers with additional payments for improved performance based on certain metrics. In addition, section 705(c) of the NDAA 2017 directed the department to develop and implement a strategy—by January 1, 2018— for its TRICARE contracts that includes 13 specific elements, such as telehealth services and beneficiary referrals, among others (see table 1). The act required DOD to modify its TRICARE contracts to ensure consistency with the required strategy providing for the 13 elements. DHA made selective changes between the T-3 and T-2017 contracts and acquisition strategy. According to DHA officials, the contracts are generally the same, and changes were made to clarify or streamline TRICARE requirements and administrative processes. The T-2017 Acquisition Strategy states that the T-2017 performance work statement, which identifies the TRICARE requirements to be implemented by the contractors, is essentially unchanged from the T-3 contracts. DHA officials explained that their leadership prioritized the continuation of beneficiary services during the T-2017 planning process over making significant changes to contract requirements that could potentially be disruptive. We found that some of the changes that were made to the T- 2017 contracts are consistent with specific provisions and themes we identified in prior NDAA legislation. Although the NDAA 2017 was enacted after the T-2017 contracts had been awarded, some of the contract changes for T-2017 may be consistent with specific provisions outlined in section 705(c)(1), such as provisions related to improving access to care, health outcomes, health care quality, beneficiaries’ experience, as well as lowering health care costs. However, DHA officials stated that because health care delivery under the T-2017 contracts began in 2018, it is too early to measure any benefits from these changes. These contract changes include (1) the consolidation of contract regions, (2) the combining of administrative costs, and (3) the introduction of new contract incentives. 1. Consolidation of contract regions. While DHA awarded the T-3 contracts for three regions (West, South, and North), it consolidated two of the regions (North and South) for the T-2017 contracts (see figure 2). By eliminating the additional regional contract, DHA anticipates a savings of approximately $25 million a year in overhead and management costs. In addition, beneficiaries are less likely to have a disruption in care when moving. For example, beneficiaries who moved between the former North and South regions would now stay enrolled with the same contractor in the larger East region. 2. Combined administrative costs. For T-2017, DHA combined all administrative costs in one contract line item in order to lower total cost of care. For example, under the T-3 contracts, DHA reimbursed the contractors for processing individual claims with a higher rate for paper claims and a lower rate for electronic claims. Without a difference in costs for T-2017, contractors are incentivized to lower their costs and prioritize electronic claims, which DHA officials say are more efficient. 3. Contract incentives. DHA incorporated incentives into the T-2017 contracts to encourage contractors to negotiate reimbursement rate discounts with network providers in order to reduce health care costs. The T-2017 contracts state that the contractor must meet a required discount rate on care provided by network providers. If this discount rate is not met, DOD will offset the discount deficit amount from the next payment due to the contractor. DHA expects that negative incentive will reduce health care costs and result in government savings. We also found examples of changes to the contract or acquisition process for T-2017 that are consistent with selected acquisition themes we identified in prior NDAA legislation. These acquisition themes are 1) leveraging commercial best practices, 2) promoting competition, and 3) focusing on value. We previously reported that the identified acquisition themes can reduce costs and increase value for the government. 1. Leveraging commercial best practices: T-2017 required contractors to increase utilization of commercial best practices, including the use of automation technology to process referrals and authorizations, episodes of care, and procedure diagnosis coding. As we have previously reported, federal agencies can leverage commercial best practices to lower costs and maximize the value of the services they buy. According to DHA officials, adapting automation technology already in use in the health care industry should improve the quality of services, beneficiary satisfaction, and result in cost savings to the government. In addition, officials from one of the current TRICARE contractors stated that the T-2017 RFP was structured to incentivize contractors to innovate and bring best practices from their industry experience in both the commercial sector and other government programs, such as Medicare. For example, the T-2017 contract included a new requirement for contractors to use industry best practices when collecting health care data, in order to identify and reduce gaps in care and enhance quality of care for beneficiaries. 2. Promoting competition: We found that DHA made an effort to promote competition for the T-2017 RFP. Competitive contracts can result in cost savings for the federal government and promote accountability for results. In the acquisition planning phase, DHA identified an increased number of interested contractors through market research, from eight for T-3 to 22 for T-2017. In addition, DHA officials stated that they took steps during the acquisition planning process to ensure that the incumbent contractors did not have a significant advantage over prospective contractors. For example, the T-2017 contracting officer was assigned early in the planning process and did not participate in management of the T-3 contracts or in interactions with the incumbent contractors. DHA officials stated that they expected greater contractor interest in the East region because the larger beneficiary population of that region would result in a more valuable contract. However, DHA received a total of seven proposals each for T-3 and T-2017, including one new company that participated in T-2017 but had not previously submitted a proposal for T-3. 3. Focusing on value: We found that DHA’s approach for T-2017 emphasizes value and quality, not just lower costs. Specifically, DHA focused on the value of improving health care by considering the total cost of care over time, rather than the cost of individual health care. This is reflected in the T-2017 Acquisition Strategy, which prioritizes quality and delivery of health care above lowest cost. For example, the T-2017 contracts required additional preventive screenings and diseases covered under a chronic care program to achieve improved quality of care despite the cost of screenings. We have previously reported that these preventive health services are determined to be cost-effective when they improve the benefit (e.g., health outcomes) in a less costly way than a given alternative care option. Some preventive services may also result in cost savings, where the cost of implementing the service is less than the expected future costs to treat a disease or condition. As of October 2019, DHA had implemented two of the three value-based pilots described in its January 2018 report to Congress, which outlines the department’s plans for addressing the NDAA 2017’s requirement for developing value-based incentive programs. Specifically, in this report, DHA described its intent to implement three value-based pilots in response to section 705(a) of the NDAA 2017—(1) the Performance- Based Maternity Payments Pilot, (2) the Medication Adherence Pilot, and (3) the High-Value Primary Care Provider Pilot—through modifications to its TRICARE contracts over the next 6 to 18 months. 1. Performance-Based Maternity Payments Pilot. DHA modified its T- 2017 contracts to begin implementing the Performance-Based Maternity Payments Pilot in April 2018. This pilot was designed to provide both non-financial and financial incentives to hospitals that achieve and maintain excellence in maternity care quality. The first phase of this pilot focused on non-financial incentives by promoting greater transparency about the quality of maternity care delivered by hospitals in the TRICARE network. Specifically, DHA implemented a “steerage model” that identifies higher-performing hospitals in the managed care support contractors’ provider directories using specific visual prompts in order to encourage beneficiaries to seek care from those institutions. The second phase of the pilot began in October 2018 and incorporated performance-based payments, or financial incentives, for network hospitals that achieve a certain level of performance on specified maternity care quality measures. The anticipated end date for the pilot is March 2021. 2. Medication Adherence Pilot. DHA modified its TRICARE pharmacy contracts to begin implementing the Medication Adherence Pilot in February 2018. This pilot is designed to incentivize beneficiaries’ adherence to medication regimens by reducing or eliminating copayments for two medications (one for diabetes and another for cardiovascular-related illnesses). 3. High-Value Primary Care Provider Pilot. As of October 2019, DHA officials told us they were still assessing the feasibility of implementing the High-Value Primary Care Provider Pilot, which would provide financial incentives (such as additional payments or reduced network discounts) to primary care providers who exceed certain quality thresholds, as well as financial incentives (such as reduced co-shares and copayments) for beneficiaries who use these providers. DHA officials said other value-based efforts are being planned to address section 705(a) of the NDAA 2017, such as value-based pilots and demonstrations that aim to incentivize providers to provide quality care— including hospital, home health, and episode-based bundled payments pilots, among others. DHA has reported that these projects will offer DHA the opportunity to test value-based payment models and incorporate innovative ideas and solutions into its TRICARE contracts. As of January 2020, we found that DOD had partially implemented six of the 13 elements required by sections 705(c)(5) and (c)(6) in the NDAA 2017, in its T-2017 contracts. DHA leadership explained that they had decided that the department would separately address each of the 13 elements through modifications to the TRICARE contracts rather than developing a single strategy that would address all of the elements. According to DHA officials, some of the 13 elements would be implemented through modifications to the T-2017 contracts while other elements would be addressed in the T-5 contracts as certain elements would require more time to develop. Section 705(c)(5): This section includes nine elements that focus on various aspects of health care delivery. We found that DHA had partially implemented six of the nine elements—including provider networks, medical management, telehealth services, beneficiary enrollment, value-based methodologies, and prevention and wellness incentives (see table 2). Although DHA officials generally described their approach for addressing the three other elements, they were not able to provide documentation, such as implementation plans, with specific time frames or actions needed to fully implement each of them. Specifically, when asked about time frames for complete implementation, DHA officials told us that many of the elements should be addressed through the T-5 contracts. DHA officials also told us the department’s approach to addressing these elements—such as provider networks—will be informed by ongoing and future value- based pilots and demonstrations; however, data from these pilots and demonstrations are not expected to be available until they have concluded. Section 705(c)(6): This section included four required elements that focus on the delivery of health care in rural, remote, and isolated areas. DHA has not implemented any of these requirements. DHA officials told us they are considering requirements for T-5 that will address the four elements, but did not provide documentation with specific time frames and actions needed to fully implement each of them (see table 3). Without plans that include specific time frames and actions needed, it is unclear exactly how and when DHA will fully implement all 13 elements into its TRICARE contracts. As we have previously reported, sound planning calls for results-oriented organizations to develop plans that (1) provide tools to ensure accountability, such as time frames, and (2) identify specific activities to obtain desired results, among other things. Developing and implementing plans with time frames and actions needed can help to ensure that DHA fully implements all 13 required elements, which is particularly important since it is in the process of developing its T-5 contracts. The NDAA 2017 required DHA to make numerous changes to its TRICARE program—some of which impact its T-2017 managed care support contracts. In particular, the act required DHA to modify these contracts to ensure consistency with 13 specific elements related to improving health care delivery, such as with provider network flexibility, increased use of telehealth services, and prevention and wellness incentives, among others. While DHA has taken steps to begin implementing some of these elements in its current T-2017 contracts, it has not developed implementation plans with time frames and specific actions needed to guide its efforts, which could help ensure that DHA successfully implements all of the required elements. Until these elements are fully implemented, the department may not achieve the TRICARE program improvements Congress intended related to access to care, health outcomes, quality of care, beneficiaries’ experience, and cost efficiency. We are making the following recommendation to DHA: The Director of DHA should develop and implement plans with timeframes and specific actions needed for all 13 required elements to be reflected in the TRICARE contracts. (Recommendation 1) We provided a draft of this report to DOD for comment. In its written comments, reproduced in appendix I, DOD generally agreed with our findings and concurred with our recommendation. The department reiterated its plans to address each of the elements required by sections 705(c)(5) and (c)(6) in the NDAA 2017 as part of its T-5 contracts. DOD also provided technical comments, which we incorporated as appropriate. In addition, DOD provided updated information on the status of its efforts to address certain elements required by section 705(c)(5). As a result of this information, we updated the status of the following two elements from “not implemented” to “partially implemented” in our overall assessment for the following reasons: 1) Provider Networks: The department provided evidence that the Accountable Care Organization demonstration was implemented on January 1, 2020, and that beneficiaries were enrolled in the program. 2) Medical Management: The department provided evidence that it awarded a contract for the TRICARE Select Patient Navigator Pilot on December 27, 2019, and that the contractor began work on January 1, 2020. The department also provided updates on the status of two additional elements—Financial Incentives and Medical and Lifestyle Incentives. However, while we updated the department’s plans for these elements in the report, we determined that their status should remain “not implemented” in our overall assessment for the following reasons: 1) Financial Incentives: The department provided evidence that it plans to provide financial incentives to Kaiser Permanente providers on an annual basis under the Accountable Care Organization demonstration. These incentives are expected to begin in 2021. 2) Medical and Lifestyle Incentives: According to department officials, these incentives for beneficiaries may be provided by Kaiser Permanente on an annual basis under the Accountable Care Organization demonstration, at no cost to the government. These officials told us they were unsure whether and how such incentives may be more broadly applied to the TRICARE program. We are sending copies of this report to the Department of Defense, appropriate congressional committees, and other interested parties. In addition, the report 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 Sharon Silas, Director, Health Care at (202) 512-7114 or silass@gao.gov or William T. Woods, Director, Contracting and National Security Acquisitions at (202) 512-4841 or woodsw@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix II. In addition to the contact named above, Bonnie Anderson, Assistant Director; La Sherri Bush, Analyst-in-Charge; LaKendra Beard, Jacquelyn Hamilton, Jessica Karnis, Miranda Riemer, and Lauren Wright made contributions to this report. Also contributing were Sam Amrhein and Vikki Porter.

Summary: In fiscal year 2018, DOD provided health care services to more than 9 million eligible beneficiaries through TRICARE, its regionally structured health care program. In each of its two regions (East and West), DOD uses contractors to manage health care delivery through civilian providers. The NDAA 2017 required a number of changes to the TRICARE program through its contracts. Specifically, it required DOD to implement a strategy with 13 specific elements—related to provider networks, telehealth services, and referrals, among other areas—for its contracts. The NDAA 2017 and the accompanying Senate Report 114-255 included provisions for GAO to examine DOD's managed care support contract acquisition process and requirements. This report (1) describes changes DOD made to its TRICARE contracts and acquisition process between its T-3 and T-2017 contracts and (2) examines the extent to which DOD implemented the 13 elements as required by the NDAA 2017, among other things. GAO reviewed and analyzed relevant federal statutes, T-3 and T-2017 planning and contracting documents, and interviewed DOD officials and TRICARE contractors. The Department of Defense (DOD) made selective changes to its TRICARE managed care support contracts and acquisition process from the third generation of contracts (T-3) to the fourth generation (T-2017) of contracts. According to DOD officials, the contracts are generally the same, and changes were made to clarify or streamline TRICARE requirements and administrative processes. Officials told GAO they prioritized the continuation of beneficiary services, rather than implement significant contract changes that could potentially be disruptive. Some of the T-2017 changes include a reduction from three to two contract regions and a different method for paying the contractors. GAO found that DOD has partially implemented six of the 13 elements required by the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017), in its T-2017 contracts. DOD leadership explained that they decided to implement each of the 13 elements separately rather than by developing a single strategy that addressed all of the elements. DOD officials explained that some of the 13 elements will be implemented through modifications to the T-2017 contracts, while others will be addressed in the fifth generation of managed care support contracts (T-5), which are expected to be awarded in 2021. While DOD has taken steps to begin implementing some of the required elements, GAO found that DOD lacks plans with specific time frames and actions needed to fully implement all of the elements. As a result, it is unclear exactly how and when all 13 elements will be implemented. GAO recommends that DOD develop and implement plans with time frames and specific actions needed for all 13 required elements in the TRICARE contracts. DOD concurred with GAO's recommendation and noted its plans to address each of the required elements in the T-5 contracts.