Since the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) began in 1956 and was expanded in 1966, it functioned much like a fee-for-service insurance program. Beneficiaries have been free to select providers and required to pay deductibles and copayments, but, unlike with most insurance programs, they have not been required to pay premiums. CHAMPUS has approximately 5.7 million beneficiaries and, as part of a larger Military Health Services System (MHSS), these beneficiaries are also eligible for care in the MHSS’ 127 hospitals and 500 clinics worldwide. Of the approximately $15.2 billion budgeted for the MHSS in fiscal year 1995, the CHAMPUS share is about $3.6 billion or about 24 percent. Because of escalating costs, claims paperwork demands, and general beneficiary dissatisfaction, DOD initiated, with congressional authority, a series of demonstration projects in the late 1980s designed to more effectively contain costs and improve services to beneficiaries. One of these projects, the CHAMPUS Reform Initiative (CRI), a forerunner of TRICARE managed care support contracts, was one of the first to introduce managed care features to CHAMPUS. Included as part of a triple-option health benefit were a health maintenance organization choice, a preferred provider choice, and the existing standard CHAMPUS choice. Managed care features introduced included enrollment, utilization management, assistance in referral to the most cost-effective providers, and reduced paperwork. The first CRI contract, awarded to Foundation Health Corporation,covered California and Hawaii. Foundation delivered services under this contract between August 1988 and January 1994. Before the contract expired, DOD began a new competitively bid procurement for California and Hawaii that resulted in DOD’s awarding a 5-1/2 year (1 half-year plus 5 option years), $3.5 billion contract to Aetna Government Health Plans, Inc. in July 1993. Because a bid protest was sustained on this procurement, it was recompeted, although Aetna’s contract was allowed to proceed until a new one was awarded. In late 1993, in response to requirements in DOD’s Appropriation Act for Fiscal Year 1994, the Department announced plans for restructuring the entire MHSS program, including CHAMPUS. The restructured program, known as TRICARE, is to be completely implemented by May 1997. To implement and administer TRICARE, DOD reorganized the military delivery system into 12 new, joint-Service regions. DOD also created a new administrative organization featuring lead agents in each region to coordinate among the three Services and monitor health care delivery. For medical care the military medical facilities cannot provide, seven managed care support contracts will be awarded to civilian health care companies covering DOD’s 12 health care regions. These contracts, much like the former CRI contracts, retain the fixed-price, at-risk, and triple-option health benefit that CRI featured. An important difference, however, is the addition of lead agent requirements—tasks to be performed by the contractor specific to military medical facilities in the region. Figure 1 shows the regions covered by the seven contracts. Since the December 1993 decision sustaining the protest of the California/Hawaii (regions 9, 10, and 12) contract award, three managed care support contracts have been awarded and all have been protested. Also, a protest was filed on the solicitations for the California/Hawaii recompetition and that for Washington/Oregon (region 11). GAO has denied the protests on these solicitations and the Washington/Oregon contract award and has yet to decide on the other two award protests. Information on the procurements awarded to date appears in table 1. For more information on the transition to managed care support contracts and the offerors submitting proposals for these contracts, see appendixes II and III, respectively. The Office of CHAMPUS, an organization within the Office of the Assistant Secretary of Defense (Health Affairs), administers the procurements. The procurement process involves the issuance of a request for proposal (RFP) that has the detailed specifications and instructions offerors are to follow in responding. Offerors are required to submit both a technical and a business (price) proposal. Upon receipt of the offerors’ proposals, a Source Selection Evaluation Board (SSEB) evaluates the technical proposals according to detailed evaluation criteria, and a Business Proposal Evaluation Team (BPET) evaluates the proposed prices. A Source Selection Advisory Council (SSAC) reviews the work of the two boards and consults with them. Following discussions with offerors about weaknesses and deficiencies in their proposals, DOD requests offerors to submit “best and final offers.” The two boards again evaluate changes to proposals, complete final scoring, and prepare reports on the evaluations. A senior executive designated as the source selection authority uses these reports in selecting the winning offeror. As part of the evaluation process, evaluators are asked to identify ways to improve the process. For a complete description of the procurement process and the tasks performed, see appendix IV. GAO sustained the protest of the July 1993 California/Hawaii award primarily because DOD failed to evaluate offerors’ proposals according to the RFP criteria. The RFP provided that each offeror’s proposed approach to attaining health care cost estimates would be individually evaluated. However, in evaluating the proposals, DOD evaluators rejected the contractors’ cost estimates and assigned the same government cost estimates to all offerors’ proposals. By so doing, the BPET did not consider offerors’ individual cost-containment approaches, such as their utilization management approaches, upon which the success of managed care contracting to contain costs largely rests. In effect, the evaluators’ action made this part of the evaluation methodology meaningless. Also, the process did not allow the price evaluators to discuss with the technical evaluators possible inconsistencies between the price and technical proposals nor otherwise discuss the technical information that supported the price estimates. Such discussions may have highlighted the need to analyze offerors’ individual cost containment approaches. During the protest of the Washington/Oregon award, the offeror protested nearly a dozen of DOD’s technical ratings of its proposal. In its decision, GAO recognized that DOD made mathematical errors that affected scoring, but these errors were not limited to the protesting offeror, and correcting them did not affect the procurement’s final outcome. DOD has made several changes that should improve future procurements. Major changes due to the protest experiences include (1) revising the price evaluation methodology and providing offerors more complete RFP information on how the methodology will be used in evaluating bid prices, (2) adding requirements for discussions between price and technical evaluation boards, and (3) revising both the requirements and the technical evaluation criteria for utilization management. Also, DOD is developing a computer spreadsheet to automate the technical scoring process and, thus, address mistakes made during the Washington/Oregon evaluation process. DOD’s other changes include providing more training for proposal evaluators, colocating the technical evaluation boards, and providing more feedback to offerors on their proposals’ weaknesses. A final change requires that DOD approve the bid price evaluation methodology before evaluating prices. DOD significantly changed its methodology for evaluating the health care cost portion of the offerors’ business proposals. While details of the new methodology are procurement sensitive and cannot be disclosed, the changes essentially involve evaluating the reasonableness of the offerors’ estimates for cost factors over which the contractor has some control, such as utilization management and provider discounts. The evaluation includes comparing the offerors’ cost estimates with the government’s estimates and considering the offerors’ justification and documentation. Also, DOD rewrote portions of the RFP to provide more explicit information to offerors so they can better understand the new evaluation methodology and the factors to be considered in evaluating prices. This more complete guidance should facilitate offerors’ ability to furnish the information DOD needs to evaluate their proposals. DOD instituted a process requiring discussions between the technical and the price evaluators. Previously, discussions between the two boards were prohibited, and knowledge possessed about offerors’ proposals by one group was not shared with the other. Under the new procedures, the SSEB briefs the BPET and responds to BPET questions on offerors’ proposed technical approaches. This should enable the BPET to better judge whether offerors can achieve the health care costs that they have bid. Conversely, the SSEB can request information from the BPET to assist in its technical evaluation. DOD significantly revised its RFP utilization management requirements and utilization management criteria used in evaluating offerors’ proposals. DOD incorporated these revisions in the solicitations for the then ongoing Washington/Oregon procurement as well as the post-protest recompetition of the California/Hawaii procurement. The revised utilization management requirements place additional responsibilities on the contractor and establish specific utilization management procedures. Also, while the previous evaluation criteria basically involved checking whether offerors’ proposed approaches addressed requirements, the revised criteria require evaluators to judge the effectiveness of the cost-containment approaches. Among other DOD improvements is the provision of more training for evaluators and team leaders who oversee the evaluation of specific tasks. Training for the California/Hawaii evaluators had been limited to about one-half day, but training on more recent procurements has been increased to nearly 1 week. The new training includes more detailed information on the (1) procurement cycle, (2) technical and price evaluation boards, (3) evaluation of proposals, and (4) use of personal computers to record evaluation information. Another change involves colocating at Aurora, Colorado, the SSEB staff who had been split between Aurora and Rosslyn, Virginia. SSEB members evaluating managed care tasks were located in Rosslyn, and those evaluating claims processing and related tasks were in Aurora.