Defense Health Care:

Actions Under Way to Address Many TRICARE Contract Change Order Problems

HEHS-97-141: Published: Jul 14, 1997. Publicly Released: Jul 14, 1997.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) process for managing TRICARE contract change orders to determine: (1) the number of, nature of, and reasons for the orders; (2) whether DOD is adequately managing the change order process; and (3) if appropriate, how DOD can improve the process.

GAO noted that: (1) since the 1994 award of the first TRICARE contract, 357 change orders, which cumulatively have increased tasks and overall costs, have been made to the five TRICARE contracts now in place; (2) DOD has settled 134 of the orders at a cost of about $336,000; (3) DOD estimated costs for the 223 orders that are yet to be settled at $38 million, but DOD's initial cost estimates differ markedly from the contractors' estimates; (4) the change orders, which averaged 43 per contract in 1996, have entailed policy, automated data processing, and operational changes to the contracts; (5) about one-third of the change orders have resulted from legislative or regulatory requirements and the remainder were DOD-initiated changes; (6) rather than separately budgeting for the costs of individual change orders, DOD has used funds budgeted for other Defense Health Program activities to pay for them--an approach that could potentially create a need for supplemental funding; (7) in addition, DOD's initial cost estimates for new orders, the basis for obligating funds for the orders, have not been sound, and as a result, DOD has not developed a reliable estimate of the total federal liability for the contract changes; (8) DOD has neither systematically reviewed the need for each order nor considered the likely costs and other effects; (9) DOD has not evaluated alternatives to amending the contracts that could achieve the same end, thus DOD has no assurance that only needed orders are issued and that their costs are minimized; (10) although DOD's goal is to settle orders within 180 days of issuance, the average TRICARE order settlement time has been 340 days; (11) as of May 1, 1997, the average age of the 223 orders yet to be settled is 273 days; (12) failure to settle orders on time can reduce the contractor's cost control incentives and limit DOD's ability to negotiate prices after the contractor has incurred actual costs; (13) to prepare new order cost estimates, DOD has engaged a consultant to independently estimate the cost of implementing each order before its issuance; (14) DOD now requires that, once a potential order's cost has been estimated, the Deputy Assistant Secretary of Defense for Health Services Financing review its appropriateness before approval; (15) DOD has formed a task force and engaged an outside contractor to streamline the overall change order process; and (16) in view of the leadership changes under way in DOD offices that manage the change order process, DOD's continued high-level management attention to implementing needed process improvements is essential.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: No new progress has been made since the accomplishment report last year. There is still a large backlog of unsettled change orders.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense (Health Affairs) to continue providing the high-level management attention that DOD has begun to focus on implementing the needed change order process improvements.

    Agency Affected: Department of Defense

 

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