For the U.S. military's massive health insurance program, a large-scale redeployment is about to get under way. By year-end, the Tricare program, which administers health benefits to more than 8 million military personnel, plans to award three managed-care companies new contracts worth a total of up to $25 billion over five years.
The move is part of an initiative called Tricare Next Generation, or "T-Nex," which involves collapsing 12 regions and multiple contracts into just three of each, with one managed-care organization responsible for covering beneficiaries in each geographic area (See map). Tricare officials hope the plan will result in better clinical quality, as well as administrative savings for both providers and the federal government.
Managed-care companies vying for the business have a lot to gain: In addition to the multibillion-dollar contracts, each company that wins a region will be responsible for more than 2 million beneficiaries and the clout that can accompany serving such a large population. They also have a lot to lose, however, if these populations are mismanaged or costs accelerate beyond expectations.
Tricare is an 8-year-old outgrowth of the Civilian Health and Medical Program of the Uniformed Services, which was created in 1956 to expand coverage to military retirees and the families of active-duty personnel. Tricare moved the program forward by establishing government contracts with private health plans that could bring the efficiencies of managed care to military medicine.
Tricare divided the country into 12 regions to maintain medical readiness, ensure access to care and improve quality and efficiency, according to the Defense Department.
In January, managed-care contestants submitted their proposals for the current round of restructuring. Some big names are on the list, including Humana, Louisville, Ky., and Health Net, Woodland Hills, Calif., both publicly traded. One company, TriWest Healthcare Alliance, has only Tricare as a client and essentially would cease to exist if it doesn't get the business.
"If we don't win, we'll all look for something else to do ultimately," says Dave McIntyre, president and chief executive officer of Phoenix-based TriWest, which serves 1.2 million Tricare members in 16 Midwestern and Western states.
As McIntyre and others await the government's decision, military and civilian hospital administrators are still unsure what the new arrangement will mean, although none contacted by Modern Healthcare expected changes that could befuddle their normal operations. Most say they are in a wait-and-see phase as companies make their cases to Tricare and winning contractors are chosen.
Tricare has not set a deadline for selecting the winners, and the program's administrator says the final decision is "at a minimum several months off."
With experience developing provider networks for Blue Cross and Blue Shield and other managed-care organizations, Assistant Secretary of Defense for Health Affairs William Winkenwerder is the change agent in charge at Tricare, and he argues that T-Nex will rid the program of "perverse incentives" built into the payment system.
Winkenwerder has become convinced that new incentives focused on customer satisfaction, financial goals and clinical quality will improve greatly on the current system, which he says does not properly split risk between the government and managed-care contractors.
The new contracts, he adds, will clarify incentives for all parties, encourage referrals to military medical facilities, simplify financial arrangements and improve the predictability of costs. Those companies that best meet the criteria will win the Tricare business, Winkenwerder says.
"We wanted to rid ourselves of a perversion of incentives that existed in the old contracts," says Winkenwerder, who manages a Tricare annual budget of $26 billion.
The managed-care companies vying for the three jumbo regions are anxiously awaiting Tricare's decision, which some predicted will not be made until the third quarter.
With a six- to 10-month transition period built in to ease the changeover, most do not expect full implementation of the new contracts until at least mid-2004, and that's assuming contractors that lose out on the bids do not sue the winners and/or the government, which has happened in the past and is widely expected to happen again.
"Historically in the Tricare program the awards have been protested," says David Nelson, president of Sierra Military Health Services, a subsidiary of Las Vegas-based Sierra Health Services. His company serves 1 million Tricare-eligible beneficiaries in 13 Northeastern and mid-Atlantic states, including the District of Columbia. "You always hope not, but I think given the magnitude, complexity and enormity of the contracts, and the reality of today's business world, you've got to believe protests will be pursued," Nelson says.
Sierra Military Health Services would see a "significant uptick" from the $450 million in total revenue it now receives to manage Tricare patients, according to Nelson, who says he believes the company is well positioned to win the new north region because of its past successes with Tricare and its ability to leverage technology to "the greatest extent possible."
Because Tricare's payment rates will continue to be based on those set by Medicare, officials do not expect the contracting changes to affect hospital reimbursement. Providers and Tricare administrators alike, however, hope that the speed and accuracy of claims processing and other administrative functions improve dramatically.
"Once we get up to speed with electronic filing and claims processing, it should make reimbursements more of a timely encounter," says Col. James Baunchalk, executive director of the Tricare region that includes 132-bed Eisenhower Army Medical Center, Fort Gordon, Ga., where he is stationed. "We're hoping that with a 10-month transition period we should make this pretty painless for hospitals and physicians in our networks."
The effect on community hospitals and physicians "should be minimal with respect to the change from old contracting partners to new," says Winkenwerder, who expects T-Nex to generate significant savings. He adds that specific estimates of those savings have yet to be completed.
"We're careful to do things in a way that is scrupulous, comprehensive, fair and evenhanded," Winkenwerder says. "We think that by following this process we will end up with the best group of private health insurance companies to work with."