Public-Private Partnerships

U.S. Air Force and Honduran doctors work together to remove a diseased gallbladder from a patient at the Doctor Salvador Paredes Hospital in Trujillo, Honduras, July 2, 2015.The 2017 National Defense Authorization Act, Pub. L. No. 114-328 (Dec. 23, 2016), introduces major changes to the Defense Department healthcare program known as TRICARE. By this time next year, we’ll see a new program to contain the cost of prescription drugs at retail pharmacies, contractual incentives for improving the quality of healthcare and reducing “per-capita cost,” and the first major step toward privatizing the delivery of healthcare to military members. Here are the key statutory provisions:

  • Access to private health care providers. Section 701 of the 2017 NDAA establishes TRICARE Select as a new self-managed, preferred provider network option for eligible beneficiaries. TRICARE Select will essentially replace the current TRICARE Extra and TRICARE Standard plans. As of January 1, 2018, all TRICARE Standard and TRICARE Extra beneficiaries will need to be enrolled in either TRICARE Prime or TRICARE Select. The Standard and Extra plans will terminate on that date. Beneficiaries under the new Select plan will have unrestricted freedom of choice in selecting their health care providers.
  • Prior authorization requirements. Section 701 of the 2017 NDAA prohibits managed care support contractors from requiring primary or specialty care providers to obtain prior authorization before referring a patient to a specialty care provider within the contractor’s network.
  • Value-based incentive program for TRICARE contracts. Section 705(a) of the 2017 NDAA requires a “value-based incentive program” to be incorporated into any TRICARE contract for the provision of health care services. These new contractual incentives would encourage health care providers to improve the quality of health care, the health of covered beneficiaries, and the experience of covered beneficiaries. One of the specific elements to be addressed in the contracts and forthcoming contract modifications is lowering the “per-capita cost” of health care. Section 705(c) sets a January 1, 2018 deadline for the program to be implemented. Contracts awarded before the deadline will be modified.
  • Procurement authority. Section 705(b) of the 2017 NDAA requires responsibility for the solicitation and award of “managed care support contracts” to be transferred from the Defense Health Agency to the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics.
  • Privatization of health care services. Section 706 of the 2017 NDAA sets a deadline of January 1, 2018 for DOD to establish “military-civilian integrated health delivery systems” through partnerships with private sector health systems. It calls military treatment facilities and HMOs or other private sector health care providers to enter into contracts or memoranda of understanding that would allow TRICARE members to receive health care services at private sector providers. Section 717 authorizes veterans to receive health care at military treatment facilities.
  • Manufacturer rebates at retail pharmacies. Section 743 gives the Secretary of Defense authority to conduct a pilot program that would allow DOD to capture manufacturer rebates that are payable when TRICARE members have prescriptions filled at retail pharmacies. Under the pilot program, manufacturers would have to pay rebates such that medications are available to TRICARE beneficiaries at the “lowest rate available,” including rates charged to the mail order pharmacy. The pilot program would begin no later than October 1, 2017 and end by September 30, 2018.

More on DOD healthcare contracting—

Incumbency as a factor in the award of TRICARE’s $58 billion managed care support contracts (Nov. 27, 2016)

OFCCP’s five-year moratorium on enforcement actions against TRICARE providers (Apr. 14, 2014)

TRICARE hospitals and pharmacies are not subcontractors (Jan. 9, 2012)

We have previously written about the Department of Labor’s effort to expand the scope of its regulatory and enforcement jurisdiction over government contractors against the wishes of Congress and even fellow federal agencies. The United States Court of Appeals for the District of Columbia struck down an attempt by the DOL to significantly expand the Davis-Bacon Act to apply to the construction of a Public-Private Partnership project. The Davis-Bacon Act requires that contractors on federal and DC government construction projects pay prevailing wages and fringe benefits to the workers on such projects. DOL sought to apply the Act to CityCenterDC, which is a mixed-use development on the site of the DC Convention Center. This project includes 60 retail stores, various private offices, approximately 700 residential units, and a 370-room luxury hotel.  Continue Reading DC Circuit rules that the Davis-Bacon Act does not apply to Public-Private Partnership project