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The Outlook for Defense Health Programs in FY 2013-FY 2014

Since February 2013 the media has focused considerable attention on the cancellation of the DoD-VA joint effort to develop a new Integrated Electronic Health Record (iEHR). Focusing on iEHR, however, misses the point that out of the $1.3B proposed FY 2014 development budget for the Military Health System (MHS), the iEHR represents a paltry $64M. Approximately $423M will be spent on medical technology development, advanced concepts development, and medical products support, making those the true areas of business opportunity.

In today’s climate of ongoing federal budget cuts, government contractors can be forgiven for feeling unsettled.  The good news is that the fiscal climate has stabilized somewhat, allowing us to peer ahead for potential business opportunities.  One of the areas attracting vendor interest is in military health.  Both the DoD and Department of Veterans Affairs have made the creation of an Integrated Electronic Health Record (iEHR) a priority.  Therefore, iEHR gets the lion’s share of media attention.  The iEHR initiative is only one aspect of Defense Health Programs (DHP), however, so this post will provide a high-level look at the shape of the DHP budget situation and where vendors might want to focus their business development efforts in the months ahead.

Starting with what remains of FY 2013, funding for the DoD’s Military Health System (MHS) in the 2013 Consolidated Appropriations Act (CAA) provided $32.7 billion, a $16 billion drop from the $48.7 billion called for in the President’s FY 2013 Budget Request.  The funding in the 2013 CAA represented a stunning 38% cut in the MHS’ budget, which received $52.8 billion in fiscal 2012.

Despite these cuts, the 2013 CAA also provided up to $16 billion for contracts for the remaining 5½ months of fiscal 2013.  This includes $522 million for TRICARE/MilHealth procurement until the end of September 2015 and $1.3 billion for TRICARE/MilHealth RDT&E until the end of September 2014.  Digging into the RDT&E number we find the following top 10 priorities outlined in the FY 2014 DoD Budget Request.

As we can see from this list, proposed RDT&E funding for iEHR in fiscal 2014 amounts to $64 million.  This is the issue that everyone is so narrowly focused on.  Meanwhile, there are potentially several larger pools of money that very few people are paying attention to.  For example, the proposed budgets for Medical Technology Development and Medical Products Support/Advanced Concept Development equal approximately $423 million.  Then there is the $43 million budget for basic IT Development not related to TMIP-J.

These budget areas are where opportunity at MHS can be found.  For the last few years $2.4 billion worth of MHS/TRICARE IT and concept development requirements have flowed through the Defense Systems Integration, Design, Development, Operation, and Maintenance Support (D/SIDDOMS) III contracts.  These contracts expire in December 2013 and the MHS has already stated that a follow-on contract vehicle will not be put into place.  This means that contracts for IT and concept development requirements like those listed on the TRICARE Acquisition Forecast will be competed in other ways, providing opportunities for large and small businesses alike. The TMA acquisition forecast for FY 2013 shows $225.4 million in planned procurements, equivalent to 43% of the procurement budget provided through FY 2014.  This suggests that ample procurement dollars have been provided to move ahead with a number of the technology acquisitions that are listed in the forecast.

Lastly, readers will notice that in my focus on the procurement of technology requirements I have not mentioned the $72.5 million budgeted for Medical Program-Wide Activities.  Assuming these activities comprise program management, acquisition support, and other professional services, I believe most of those budget dollars will find their way into task and delivery order contracts competed among holders of the Tricare Evaluation Analysis and Management Support (TEAMS) contracts.  A quick look through the TMA Acquisition Forecast for FY 2013 shows that the projected value of requirements which fall under the TEAMS scope of work equals $201 million out of $225 million.  This leaves $24 million in pure IT requirements available for competition in FY 2013.  Keep in mind that these are just the requirements listed on the TMA acquisition forecast.  More IT efforts are likely in the pipeline.

 

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