Shortcomings With the Current Contracting Approach

DOD’s current contracting approach for TRICARE poses several administrative challenges, and has contributed to significant funding shortfalls. Offerors have stated that complicating the preparation of proposals was the need to address DOD’s overly prescriptive requirements, restricting its ability to use best practices to achieve the same results with greater cost efficiency. The effect and cost of these numerous adjustments created an unstable program and contributed to annual budget shortfalls. Large, Complex Proposals Costly To Bid

Under DOD’s contract approach, the TRICARE contracts were competitively bid. In its claims improvement initiative, DOD has been partnering with its contractors to review the need for these edits. Numerous Contract Adjustments Lead To An Unstable Program and Funding Shortfalls

Further complicating the design of the TRICARE contracts is the fact that DOD designed them to have periodic adjustments to the contract price, which are called bid price adjustments (BPA). The ASD/HA is currently reassessing future contract approaches for TMA to employ and is considering DMOC’s recommendations. However, to successfully accomplish this initiative, DOD needs to address pervasive problems with its financial management and workload data. TRICARE 3.0 Withdrawn

TMA officials spent 3 years developing a new TRICARE contract vehicle, commonly referred to as TRICARE 3.0, for the next round of contracts. They were also concerned about the fairness of the structure for financial penalties and incentives. In determining this, DOD and the contractors recognize that the contract needs to be flexible to maintain a balance between DOD’s goal of providing uniform benefits nationwide with the realization that the delivery of health care is local.
Why GAO Did This Study

This testimony discusses lessons learned from the Department of Defense's (DOD) TRICARE contracts and their implications for the future.

What GAO Found

TRICARE's successes and maturity reflect the ability of the DOD and its contractors to work within the current contract structure. However, it has not been easy, and there are important lessons from current contract shortcomings that need to be addressed in designing future TRICARE contracts. Most, including DOD, believe that the current contracts are too large, complex, and prescriptive in nature, limiting innovation and competition. Also, numerous adjustments to these contracts have created an unstable program, and program costs have been difficult to predict, contributing to annual funding shortfalls. Additionally, financial incentives, accountability, and data quality need to be strengthened to achieve greater efficiencies. To address these weaknesses, DOD redesigned its solicitation for the next round of TRICARE contracts; however, the initial issuance was withdrawn because of internal concerns and reservations about its costs and specifications. DOD is now reassessing how to structure the TRICARE contracts and is considering the views and recommendations of the Defense Medical Oversight Committee, a group formed to oversee TRICARE.