In a move that signals the start of the acquisition cycle for the DOD’s largest purchased care contract, the Defense Health Agency (“DHA”) has released a draft RFP for the next generation of TRICARE Managed Care Support (“MCS”) contracts.  The TRICARE program, which provides health care services to nearly 10 million servicemembers and their families across the country, relies on private contractors to develop and maintain health care provider networks.  Given both the size of these contracts — the current third-generation MCS contracts are worth more than $53 billion — and their strategic importance to the DOD in delivering health care to millions of servicemembers, the TRICARE MCS procurement will be closely watched by both government and industry stakeholders alike.  And although elements of the program outlined in the draft RFP will be familiar to past participants in the MCS program, the next generation of MCS contracts also features several new characteristics that could significantly impact the contract award and performance.

TRICARE MCS contractors are responsible for administering and overseeing medical management, enrollment, claims processing, specialty care referrals, customer service, and data collection.  Due to the breadth of the program and the number of individuals it covers, responsibility for providing these services is divided and allocated on a regional basis.  Since 2002, the TRICARE program has been split into three geographic regions  — North, South, and West — with one MCS contractor responsible for providing services to each region.  Under the draft RFP, however, the North and South regions would be combined and renamed the “East” region.  Thus, the draft RFP contemplates only two awards: one each for the East and West regions.  This consolidation is likely to further intensify competition for what were already highly sought-after contracts.  In the previous procurement cycle, the three contract awards spawned six separate bid protests; now, with three incumbents (and probably numerous other challengers) vying for just two contracts, competition will be even more fierce.

Another significant change to the fourth generation of TRICARE MCS contracts involves the timeline for the procurement.  The third-generation TRICARE MCS contracts were originally scheduled to expire in 2015, but that date was pushed back due to extensive procurement delays associated with bid protests in each of the regions.  Consequently, it appears that the five-year performance periods for the MCS contracts are scheduled to run through 2015 in the North region, 2017 in the South region, and  2018 in the West region.  However, the recently released draft RFP contemplates an initial base period of performance beginning sometime in 2016, to be followed by five one-year option periods.[1]  This anticipated timeframe is notable for two reasons.  First, for a contract with a contemplated 2016 award date, it is early to be issuing a draft RFP.  This advance planning appears to be an attempt by DHA to avoid the delays in the start of performance that plagued the third-generation MCS contracts.[2]  Second, and perhaps more importantly, it is difficult to see how the government can begin performance with a new contractor before the current contracts expire — the government likely will have to terminate for convenience the MCS contracts in the South and West regions, which, according to GAO, are scheduled to run through 2017 and 2018, respectively. Doing so would have the advantage of aligning the performance start dates for TRICARE MCS contracts going forward, but it would significantly reduce the performance period for the current MCS contractors in the South and West regions.  The government possesses broad rights to terminate for convenience, but the regulations governing the settlement of terminations for convenience are complex.  Current MCS contract holders would be well-advised to consider taking advance steps to ensure that they are fairly compensated for work done and the preparations are made with regard to the potentially terminated portions of the contract, including a reasonable allowance for profit.

A final aspect of the RFP worthy of attention is a one-sentence declaration, buried in Section L.5.2.1, that states: “Please note that network providers are not consideredsubcontractors of the prime contractor, and therefore healthcare services provided by networkproviders may not be counted in the subcontract plan.”  The statement that “network providers are not considered subcontractors of the prime contractor” is remarkable in that it directly contradicts a recent pronouncement from the Department of Labor’s Administrative Review Board (“ARB”) in a case addressing precisely this point.  In OFCCP v. Florida Hospital of Orlando, the ARB held that a network health care provider (Florida Hospital of Orlando) was a subcontractor to Humana Military Healthcare Service, the current TRICARE MCS contractor for the South region.  The case was closely watched and widely reported — the decision meant that the hospital and other network providers would be subject to costly federal affirmative action and record-keeping requirements — and in response to widespread concern about the impact of the decision, DOL instituted a five-year moratorium on enforcement actions against TRICARE network providers.[3]  The significant attention surrounding the ARB’s holding makes the draft RFP’s statement to the contrary all the more curious.  As a practical matter, prospective participants in the fourth-generation MCS program should understand that network providers may very well be considered federal subcontractors, notwithstanding the draft RFP’s statement to the contrary.

The DHA has invited industry stakeholders to submit comments and questions on the draft RFP by Monday, December 8, 2014.  Interested offerors should take advantage of this opportunity:  the acquisition cycle for the next generation of MCS contracts may be only just beginning, but the key considerations that will shape the procurement are already becoming apparent.