TRICARE Protests: Round 2

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(Reprinted from February 1, 2010 issue of HealthLeaders Media)

Several months ago, we wrote about the stunning upset of two of the three managed care support contracts awarded under TRICARE, the military’s health program for retirees and dependents of active duty personnel. Neither Health Net Federal Services (HNFS), the incumbent contractor for one of the three contracts with a 21-year track record of performance for DoD, nor Humana Military Health Services (HMHS), another incumbent with a 13-year track record with DoD, were selected in the latest competition.

Both contract awards were protested by HNFS and HMHS and since then the Government Accountability Office (GAO) has upheld both protests. While this does not mean that HNFS or HMHS will automatically retain their contracts, it does keep them in the running for reconsideration. GAO recommended that the government go back and “re-evaluate” proposals by correcting the evaluation deficiencies they identified and make subsequent award decisions.

What’s even more stunning than the upset of the initial contract awards is learning about the extent and nature of deficiencies in TRICARE Management Activity’s (TMA) evaluation of proposals according to the GAO decisions. Having read GAO protest decisions about federal contract awards in general, and those related to healthcare contracts in particular for some 20 years or so, we find that GAO decisions are not always—to use one of their favorite terms—”persuasive”.

So while we find some of the arguments GAO makes in this case to be less than persuasive as well, after reading GAO’s decision for HNFS’ protest in particular, it’s really hard to imagine how the government could have made any more mistakes. The GAO’s decision in HNFS’ protest of the award to Aetna Government Health Plans (AGHP) was upheld on multiple grounds. Excerpts from selected grounds that were upheld are in italic below and our comments follow:

1. TMA credited AGHP with past performance of its parent and corporate affiliates, yet AHGP’s proposal never identified which entities were involved with performing the prior contracts submitted, nor did it establish the roles that the various entities would have in performance of the contract.

While the ambiguity regarding who from the AGHP team did what in past contracts, and who would do what for the future TRICARE contract was sufficiently vague as to raise legitimate questions in the minds of GAO officials, though it’s unclear why TMA apparently did not consider the same ambiguities to be deficiencies or have some of the same questions during evaluation and prior to award.

If TMA raised similar questions to those of GAO, TMA could have legally alerted AGHP to preliminary evaluation deficiencies at that point in time, which might have allowed AGHP to remedy them. This seems like a major missed opportunity for TMA to have appropriately allowed an offeror the opportunity to have strengthened their proposal, which would have supported TMA’s ultimate conclusions in this area.

2. To be considered “relevant,” RFP evaluation criteria required that past performance references be of contracts with at least 2.1 million covered lives. Of the five required references, AGHP reportedly submitted four contracts with less than 3% of the required amount each, and its largest contract had no more than 11% of the minimum required to be considered fully relevant-yet TMA still gave AGHP its highest past performance rating.

Upon initial observation, we find this to be an extraordinary error, first on the part of AGHP, for failing to submit a single “relevant” contract among its past performance references, and second—perhaps even more surprising—for TMA to have accepted them.

It’s possible that AGHP submitted references knowing that they would be less than what was required because that’s the best they had. Maybe they didn’t have a contract in excess of 2.1 million over the last three years; or maybe they knew they wouldn’t get positive references from contracts larger than the ones they submitted. It’s certainly possible to envision legitimate reasons why they may not have wanted one or more of their contracts meeting the cutoff criteria for relevance to be included.

However, the fact that the largest contract submitted was for no more than 11% of what TMA was looking for boggles the mind, particularly for a company of Aetna’s size. Further, that TMA could have “High Confidence” in AGHP to meet the requirements to perform successfully with DoD’s population of some 2.9 million people on the basis of these contract references alone is stunning. In this case, we completely agree with GAO’s conclusion.

3. HNFS challenged TMA’s pricing evaluation for several reasons having to do with staffing and compensation. One of the arguments it made was that AGHP proposed to hire many of HNFS’ employees working on the contract at significantly lower compensation. HNFS argued that TMA failed to evaluate such claims reasonably.

If they had, they would have realized that the significant decrease in compensation would have severely compromised AGHP’s ability to hire enough adequately qualified employees, thereby creating a significant element of performance risk that should have downgraded a “reasonable” evaluation of AGHP’s staffing plans. AGHP’s plans to hire the incumbent’s staff is a very common, and, in general, acceptable means of proposing to staff large, existing contracts like this.

HNFS argued that the acceptability of this as a proposed solution should have reasonably been challenged, or at least questioned by TMA, because of AGHP’s significantly lower compensation plans. The GAO was apparently receptive to these concerns and also felt it was unreasonable for TMA to have failed to account for this. We agree that any offeror’s plans to hire large numbers of an outgoing contractor’s workforce with the explicit acknowledgement that it will not match current levels of compensation should be examined carefully, and evaluated accordingly. While we agree with GAO that it was unreasonable for TMA not to have considered this, we think it was equally unreasonable for GAO not to have taken the next logical step in a hypothetical discussion of this sort.

In today’s economic environment, with one in ten people out of work, just keeping a job under any circumstances (e.g., with a lower salary, fewer hours, less benefits, etc.) would for most people be a more logical and reasonable choice than the decision to walk away from an offer to keep your job, but at a lower salary. Given a choice of keeping your job with a lower salary under a new employer, or becoming unemployed in today’s economy, we think the “reasonable” choice for most people would be to keep their position at a lower salary, rather than risk the uncertainty of being unemployment in today’s economy.

This seems like a rather obvious omission of “reason” from GAO’s analysis. Had GAO extended this concept of “reasonableness” logically, AGHP’s proposed plans would have seemed more realistic and credible…and less likely to have been challenged by GAO.

4. AGHP hired a former high-level TMA employee to help prepare its proposal, and failed to disclose this to the Contracting Officer before award. This created an appearance of impropriety based on the unfair competitive advantage stemming from the individual’s access to non-public proprietary and sensitive information. The record shows that the individual had access to non-public proprietary information concerning the protester’s performance of the incumbent contract, which appeared relevant to the challenged procurement.

On first blush, AGHP’s hiring of the former high-level TMA official (in this case, the TMA Chief of Staff) seems to present a rather glaring appearance of impropriety. On the other hand, we have seen GAO decisions that have legally justified all kinds of employment and consulting relationships, which appear at least to the general public to be fairly obvious conflicts of interest or present the appearance of an unfair competitive advantage.

So the fact that a former high ranking TMA official was hired by AGHP isn’t, in and of itself, per se evidence of something “rotten in the state of Denmark”. In fact, the individual in question had obtained several letters from the TMA ethics office clearing him to work on selected aspects of the proposal. Information gathered during the protest, however, indicated that while still employed at TMA, the individual participated in a number of meetings and had access to a number of documents that did include proprietary information about HNFS’ contract with TMA.

Furthermore, the individual involved was advised in the letter from the ethics office that prospective offerors were to contact the contracting officer if they had questions about whether their working relationships presented potential issues. AGHP apparently did not do this, giving GAO, in effect, a “smoking gun” with which to sustain yet another basis of the protest.

For organizations interested in federal healthcare contracting, the lessons from this series of TMA contracts and the protests that followed continue to be learned and, in some cases, forgotten. As the saying goes, “it ain’t over until the fat lady sings” and she’s still waiting in the wings. Given the magnitude and significance of these contracts, we will continue to follow developments and offer commentary in subsequent articles as the process unfolds. Stay tuned.

TRICARE Protests: Round 2

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