Rising Costs and Shifting Competition: A GAO Review of TRICARE Contracts
The April 2025 Government Accountability Office (GAO) report, titled Defense Health Care: Key Characteristics of TRICARE Contracts (GAO-25-107370), provides a detailed comparative analysis of the Department of Defense’s (DOD) current and prior TRICARE contracts for health, dental, and pharmacy services. Authored by Sharon M. Silas and her team, the report is a response to a Congressional mandate under the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, and it dissects 13 high-value TRICARE contracts, collectively worth approximately $168 billion as of September 30, 2024.
GAO’s findings reveal that the majority of the current TRICARE contracts have increased in value compared to their predecessors. Eleven of the thirteen contracts saw a rise in total contract value at the time of award. This increase is attributed to several interrelated factors: extended performance periods, expanded geographic service areas, additional program requirements, and a general rise in healthcare costs spurred by inflation and pandemic-related disruptions. For example, the Managed Care Support contracts, which manage TRICARE's private sector care within the U.S., extended their health care delivery periods from five to eight years and underwent regional realignments that affected millions of beneficiaries.
Another key takeaway from the GAO's analysis is the decline in competition for many of the contracts. Of the seven contracts awarded through competitive bidding, four received fewer bids compared to their previous generation. Notably, six of these seven contracts were awarded to incumbent contractors, underscoring a trend toward continuity that may reflect the complexity and entrenched expertise required for TRICARE administration, but that also raises questions about competitive pressure and innovation.
The report also underscores the statutory obligation for six US Family Health Plan contracts to be awarded through sole source acquisitions. While this ensures continuity, GAO reiterates concerns previously raised about the duplicative nature of the US Family Health Plan and recommends reconsideration of its structure and cost-efficiency.
TRICARE contract types and pricing mechanisms have also evolved. The contracts employ a mix of fixed-price and cost-reimbursement structures, with incentives for cost savings and performance. These mechanisms introduce varying degrees of risk-sharing between the government and contractors. Contract modifications, whether unilateral or bilateral, have also played a significant role in altering total contract values post-award, often in response to statutory changes, evolving beneficiary needs, or administrative reforms.
Finally, the report discusses the roles of the Defense Health Agency’s (DHA) contracting and program offices in managing these complex agreements. Contract oversight is guided by Quality Assurance Surveillance Plans and requires staff to complete acquisition-related certifications and training. Coordination between DHA’s Contract Resource Management, General Counsel, and Health Plan Operation Support offices further ensures that statutory compliance and fiscal discipline are maintained across the TRICARE portfolio.
Disclaimer: This blog post is a summary of a GAO report and is intended for informational purposes only. It is not guaranteed to be accurate and does not constitute legal advice.
