July 26, 2023

Warren Questions DoD on Failures to Prevent Overpayments and Price Gouging in TRICARE Health Program

Contractors Overcharging for Health Care Devices and Treatments, DoD Fails to Seek Reimbursement; Defense Health Agency Recovered Almost $500 Million in Judgments and Settlements Related to TRICARE Overpayments in 2020

At 4PM Today, Warren Will Chair Armed Services Subcommittee Hearing on Rooting out Waste, Fraud, and Abuse in Defense Spending 

Text of Letter (PDF)

Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.), chair of the Senate Armed Services Personnel subcommittee, sent a letter to Secretary of Defense Lloyd J. Austin III and Director of the Defense Health Agency (DHA), Lieutenant General Telita Crosland, regarding a series of DoD Inspector General (IG) reports  finding that the Department of Defense (DoD) is failing to prevent price gouging and overpayments to contractors in the TRICARE health program.

“TRICARE is the DoD’s administered health-insurance program for servicemembers, retirees, and their families in the U.S. and overseas… DHA partners with private contractors to provide health services and care ‘beyond what’s available at military hospitals and clinics.’ … Two separate DoD IG reports highlighted DHA’s failure to prevent provider and contractor-claims processor price gouging in 2016 and 2017,” wrote Senator Warren. 

  • One report found that because DHA policy failed to “require contractors for the three TRICARE regions to use only suppliers that had fixed reimbursement rates,” DHA overpaid $16.2 million for standard electric breast pumps and replacement parts in 2016, and estimated that without changes the DHA could “overpay an additional $81.2 million over the next 5 years.” 
    • From 2015 to 2016, the amount DHA paid for TRICARE “paid-as-billed” services and equipment for breast pumps increased nearly 122 percent.
  • Another report found that DHA is paying higher prices than necessary for TRICARE services and equipment – $3.1 million for human papillomavirus (HPV) vaccines and $0.8 million for intrauterine devices (IUD) – because it “did not establish or use… maximum allowable reimbursement rates,” the payment ceiling for reimbursement to providers. 
    • Additionally, DHA has failed to be proactive and update maximum allowable reimbursement rates when necessary. For instance, when Medicare stops reimbursing a specific procedure code and switches to a second procedure code, DHA has failed to update its methodology to be in-line with Medicare, meaning that in instances where a maximum rate was in place, it no longer is, leading to overpayment. The IG predicted that without changes the DHA could overpay “an additional $19.5 million… over the next 5 years.”

“In addition to wasting taxpayer dollars, these overpayments harm beneficiaries… It is especially troubling that in an era when reproductive health care is under attack, the products and services most at-risk for price-gouging are those that can help with family planning (e.g., pumps for nursing mothers and contraceptives),” wrote Senator Warren. 

“As a result of these audits, DoD IG recommended multiple actions by DHA, including confirming all claims are paid using the maximum rate, and recouping overpayments when they are not. However, according to DoD IG, DHA still has not yet sought a refund of the $16.2 and $3.9 million in overpayments for standard and electrical breast pumps and replacement parts and vaccines and IUDs, respectively,” continued Senator Warren.

According to the DoD IG, “the (DHA) Director (Raquel Bono) disagreed with the recommendation to seek voluntary refunds from TRICARE providers to whom DHA paid more than other pricing benchmarks identified in this report” and that “voluntary refunds are not realistic or enforceable if payments were paid according to the contract.” However, even TransDigm – a notorious abuser of DOD contracting provisions –provided DoD a $16 million voluntary refund in 2022” … shortly after leaving the government, retired Vice Admiral Bono joined the board of Humana – a decision that raises serious questions about conflicts of interest and DoD’s efforts to close the revolving door between government service and the private sector.

“DHA also has not fully implemented the recommendation to ‘conduct annual reviews (where)… TRICARE paid higher prices,’ nor to ‘establish and implement new TRICARE maximum allowable reimbursement rates.’ It is unacceptable that DHA is not doing the bare minimum to ensure taxpayer dollars are protected… DoD and DHA need to improve internal controls and strengthen efforts to prevent overpayment and price gouging. I have and will continue to take action to protect taxpayers and end contractors’ rip-offs of DoD,” concluded Senator Warren. 

Given these concerns, Senator Warren is asking DoD and DHA a detailed set of questions about how they intend to address this failure to protect taxpayer dollars by August 24, 2023. 

Senator Warren has led work to hold giant corporations accountable for price gouging consumers and the government and has urged DoD to crack down on these efforts: 

  • In June 2023, Senators Warren and Mike Braun (R-Ind.), alongside Rep. Garamendi, reintroduced the bipartisan Stop Price Gouging the Military Act, which would close loopholes in current acquisition laws, tie financial incentives for contractors to performance, and provide the Department of Defense (DoD) the information necessary to prevent future rip-offs.
  • In May 2023,  Senator Warren and Representative John Garamendi sent letters to DoD, Boeing, and TransDigm on companies’ refusal to provide cost or pricing data.
  • In May 2023, Senators Warren, Sanders, Braun, and Grassley sent a letter to DoD urging an investigation into contractor price gouging.
  • In October 2022, Senator Warren obtained a commitment from DoD not to increase contract prices due to inflation.
  • In October 2022 Senator Warren sent a letter to DoD urging them to insist on receiving certified cost or pricing data to justify any contract adjustments.
  • In June 2022, Senator Warren and Representative Garamendi introduced the bicameral Stop Price Gouging the Military Act, which would enhance DoD’s ability to access certified cost and pricing data. Part of Senator Warren’s legislation was incorporated into the FY 2023 National Defense Authorization Act reported to the Senate.
  • On May 12, 2022, Senators Warren and Tammy Baldwin (D-Wisc.) and Rep. Jan Schakowsky (D-Ill.) introduced the Price Gouging Prevention Act of 2022, which would prohibit the practice of price gouging during all abnormal market disruptions – including the current pandemic – by authorizing the FTC and state attorneys general to enforce a federal ban against unconscionably excessive price increases, regardless of a seller's position in a supply chain. 
  • On March 16, 2022, Senator Warren introduced the Prohibiting Anticompetitive Mergers Act to help stomp out rampant industry consolidation that allows companies to raise consumer prices and mistreat workers. The bill would ban the biggest, most anticompetitive mergers and give the Department of Justice and FTC the teeth to reject deals in the first instance without court orders and to break up harmful mergers. 
  • On March 2, 2022, Senator Warren and her colleagues called out drug manufacturers for squeezing American families with rapid and widespread price hikes on prescription drugs. 
  • In February 2022, at a hearing, Senator Warren called out corporations for abusing their market power to raise consumer prices and boost profits. 
  • That same month, Senator Warren requested the Department of Justice to take aggressive action against corporations violating antitrust laws to hike prices for consumers. 
  • In January 13, 2022, Senator Warren questioned Federal Reserve nominee Lael Brainard about market concentration and price gouging driving inflation.
  • At a hearing in January 2022, Senator Warren pressed Fed Chair Jerome Powell on the role of corporate concentration in driving up prices for consumers during his renomination hearing to be Chair of the Board of Governors of the Federal Reserve System.
  • In December 2021, Senator Warren slammed Hertz's $2 billion dollar buyback plan, which would line the pockets of company executives and the private equity firm Apollo Global Management, while they raised rental car costs for consumers. 
  • In November 2021, Senator Warren identified 11 energy companies for inflating natural gas prices for consumers while reaping record profits. 
  • That same month, she requested the Department of Justice to investigate the poultry industry's anticompetitive behavior as turkey and chicken prices soar.
  • In the past year, Senator Warren has urged the Biden administration to closely scrutinize potential anticompetitive mergers that could lead to higher prices for consumers and accelerate industry consolidation. She has led letters about the proposed mergers of Frontier and Spirit airlines, Sanderson-Wayne, WarnerMedia-Discovery, and Amazon-MGM.
  • In September 2020, Senator Warren and Representative Ro Khanna (D-Calif.) formally requested that the Department of Defense (DoD) Inspector General (IG) investigate reports that the Pentagon redirected hundreds of millions of dollars of funds meant for COVID-19 response via the Defense Production Act (DPA) to defense contractors for "jet engine parts, body armor and dress uniforms.”
  • In May 2020, Senator Warren wrote to the Department requesting clarification on how the Department would prevent profiteering following a recent change to increase payments to contractors in response to the COVID-19 pandemic.
  • In March 2020, Senator Warren joined her colleagues in urging the FTC to use its full authority to prevent abusive price gouging on consumer health products during the COVID-19 pandemic. 
  • In May 2017, Senator Warren sent a letter to the Department of Defense Inspector General asking for an investigation into defense contractor TransDigm’s refusal to provide cost information to the Department of Defense.