Small business status impacts government contractors in several ways. Set-aside procurements and financial assistance programs are available for small businesses. Small business status is important for those seeking to meet the goals and commitments set forth in their small business subcontracting plans. Looming over all determinations of small business size status is the concept of affiliation. If the Small Business Administration finds that two business concerns are “affiliates” (one controls or has the power to control the other or a third party controls or has the power to control both), a business may no longer be a “small business.”

Affiliation determinations are likewise essential for pharmaceutical companies seeking to have the Food and Drug Administration waive the user fee for reviewing a new human drug application. Under § 736(d)(4) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 379h(d)(4), a small business is entitled to a waiver of the prescription drug user fee when the business meets three criteria:

  1. The business must employ fewer than 500 persons, including employees of its affiliates.
  2. The business does not have a drug product that has been approved under a human drug application and introduced or delivered for introduction into interstate commerce.
  3. The application must be the first human drug application, within the meaning of the FD&C Act, that a company or its affiliate submits to the Food and Drug Administration for review.

Continue Reading FDA breaks with SBA on small business affiliation

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)

GAO has published its decision denying multiple protests of the Defense Health Agency’s decision to award the T-2017 managed care support contracts to Humana Government Business, Inc. and Health Net Federal Services, LLC. Humana won the TRICARE contract for the east region with a total evaluated price of $40.7 billion. Health Net won the west region contract with a total evaluated price of $17.7 billion.

The Atlanta Opera's 2011/2012 performance of The Golden Ticket
Photo: The Atlanta Opera

One of the key issues addressed in GAO’s decision was the challenge to Humana’s past performance rating. Anthem subsidiary WellPoint Military Care Corporation argued that DHA placed so much weight on prior experience as a TRICARE prime contractor that incumbency amounted to an unstated evaluation criterion. In WellPoint’s view, incumbency was the “golden ticket to attaining the highest Substantial Confidence rating.”

GAO found no merit to WellPoint’s argument. There was nothing in the record to suggest that DHA treated incumbency as an unstated evaluation criterion. Indeed, DHA considered WellPoint’s own past performance superior to that of two other incumbent TRICARE contractors—Health Net and UnitedHealth Military & Veterans Services, LLC.

GAO also rejected the legal basis for WellPoint’s argument. While incumbency is not necessarily a golden ticket, GAO also found that it was reasonable to give credit to Humana for its prior experience managing a large TRICARE regional contract. In GAO’s view, “it is not unreasonable for an agency to place particular emphasis on a firm’s performance as an incumbent contractor, since such performance may be reasonably viewed as a more accurate indication of likely future performance . . . .”

Incumbency is not necessarily a golden ticket, but it certainly can’t hurt.

Continue Reading Is incumbency a golden ticket to strong past performance? TRICARE’s $58 billion managed care support contracts