Expanding Services Portfolios and M&A Defining Payer Landscape in Government Healthcare

APR 6

The third generation of TRICARE contract RFPs celebrated turning four years old and the contracting process is still ongoing. While the initial contract awards were announced in 2009, heated negotiations are underway for the last remaining TRICARE contract. The last two weeks saw the five year $20B TRICARE West Region contract awarded to UnitedHealth Group – which was promptly counter protested from the incumbent, TriWest. Contract awards and protests are common, and to better understand the driving forces behind the highly combative and contentious atmosphere around TRICARE contracts, it is important to look at the broader market.

The Military Health System (MHS), which includes the TRICARE contracts, and the Veterans Health Administration (VHA) – represent the two largest opportunities for commercial health payers to expand their presence outside of Medicare and Medicaid. Unlike CMS, the MHS and VHA are relatively protected from government budget turmoil and political scapegoating. A decade of global military campaigns and higher combat survival rates have increased demands on DoD and VA care programs and driven combined spending to over $100 billion and counting, while persistent reimbursement challenges and healthcare reform uncertainties have spurred some payers to look elsewhere for diversification.

In order to better align with and pursue future opportunities in the government healthcare space, and recognizing the volatility of the TRICARE contracting process, commercial payers have revisited their government healthcare strategies and developed road maps for expansion going forward . With the most recent award to UnitedHealth Group, the three TRICARE contracts are all expected to be operated by large public commercial health plans, each with markedly different strategies for pursuing government healthcare expansion.

Health Net operates a small portfolio of VA community-based outpatient clinics and has been a TRICARE North Region contractor since 2004.  It is also the contractor for the Military & Family Life Consultant Program, providing behavioral health and counseling services to youth and adults.  It wasn’t until this year that the Company identified the VA as a key opportunity and separate area of strategic focus going forward as it tries to diversify and expand beyond its TRICARE contract and grow its VA footprint.

Humana has served as the TRICARE South Region contractor since 1996. Its MHS presence beyond that extends mostly to patient scheduling for some military treatment facilities. Within the VA, Humana has been a frontrunner in leveraging its expansive network of commercial providers to treat veterans through VA pilot programs Project HERO and Project ARCH.
 
  • Project ARCH (Access Received Closer to Home) is a VA care initiative designed to facilitate healthcare access for eligible Veterans by connecting them with care services closer to home.
  • Through Project HERO (Healthcare Effectiveness through Resource Optimization), Humana provides the VA with pre-screened networks of health care providers who meet VA standards for quality care when specific medical expertise or technology is not available inside the VA health care system. Critical for Humana in expanding its government presence will be continuing to find innovative ways to deploy its commercial expertise, and that of recent acquisitions Concentra and SeniorBridge, into government patient populations.

While UnitedHealth Group may be the new kid on the block (its military and veterans services division was formed in 2007 to pursue the TRICARE opportunity), it has not spared expenses in clawing out a footprint. The recent TRICARE announcement was a massive strategic uplift for United, which had invested considerable time and resources since 2007 aimed at wresting a TRICARE contract from an incumbent.
 
  • UnitedHealth Group’s acquisition of Logistics Health Incorporated, a national provider of medical services to the federal government, instantly positioned the company as a government health leader.
  • At the time of LHI’s acquisition in June of last year, LHI’s operations were largely concentrated around the Reserve Health Readiness Program, providing medical evaluation and readiness exams to the military.
  • The contract win in March of last year to provide clinical disability exams to 31 VHA sites had a first year contract value of $120 million and a five year ceiling of $635 million.
  • With a substantial presence across the DoD and VA, a final decision on the TRICARE win would establish UnitedHealth Group as the undisputed government healthcare heavyweight.


The numerous program opportunities expected to enter the government health RFP pipeline in the next 6-12 months provide an impetus for commercial payers to aggressively expand their capabilities in the sector. Given the critical importance of past performance and quality of care in RFP processes, acquiring companies with government contract experience and a track record of superior results will be essential in expanding a government contract footprint in the healthcare sector.

TripleTree is closely watching a range of upcoming contracts to underscore any possible trend including:

  • TRICARE for Life: $29B program providing supplemental coverage for two million TRICARE/Medicare dual eligible military/veterans projected to grow to $48B by 2021.
  • TRICARE Overseas: TRICARE services for overseas personnel
  • Military OneSource, a telephonic employee assistance program
  • Reserve Health Readiness Program (RHRP), providing medical and dental readiness services to all Reserve forces


The competition for government contracts will increase in pace with government healthcare spending as more large-scale public players enters the market (i.e. Lockheed Martin’s acquisition of QTC) and the scarcity of independent quality assets with scale becomes more acute. The earlier and more meaningfully a payer is able to carve out a platform in the government healthcare services area, the more defensible such a position becomes down the road. We fully expect that in addition to the proactive interest defense contractors are displaying in expanding their healthcare presence, commercial players will continue to become more active and aggressive buyers as well.  Let us know what you think-

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Marc Baudry