Defense Contractors Venture into Health Care

As funding for military contracts shrinks, major defense contractors have started to edge their way into the business of implementing health care reform.

Posted on 12/14/14
By Miriam Pemberton | Via IPS
(Photo by  Images Money, Creative Commons License)
(Photo by Images Money, Creative Commons License)

The new champions of the Affordable Care Act are — so the Washington Post’s Business section reported last weekend — defense contractors? As their diet of military contracts gets leaner, the major feeders have been fattening up on new work helping to implement health care reform.


General Dynamics has been staffing the call centers that help consumers navigate the website.  Northrop Grumman has been managing data-sharing for the National Institutes of Health.  Lockheed Martin has been doing the same for the Centers for Medicare and Medicaid Services.


There are obvious reasons to celebrate this development.  Who could fail to cheer when, as Jay Hancock writes in the Post article, “In a way that is deeply changing Washington contracting, growth opportunities from the federal government have increasingly come not from war but from healing”?


Federal spending is shifting, in a modest way, from guns to butter. Following this money should allow the contractors to let up a little on their clarion calls on behalf of weapon systems the country doesn’t need, including the ones the Pentagon doesn’t even want.


The big contractors are “systems integrators,” as they frequently tell us.  This gives them, in principle, rare capabilities to solve problems for the system that is integrating to provide health care for all.


But here’s why we need to worry:  One year ago, Northrop Grumman paid $11.4 million to settle a case brought by the Justice Department charging the company with improperly billing the government for costs on “hundreds of 2004 contracts.”  This is the very same company that the Department of Health and Human Services hired to help it detect Medicare fraud and control costs.


In 2011, the Commission on Wartime Contracting estimated the cost of waste and fraud related to contracting for the wars in Iraq and Afghanistan to be between $31 and $60 billion.  The range is so large because the Defense Department’s multiple accounting systems — our nation’s largest discretionary account remains unauditable — make hiding costs so easy and counting them nigh impossible. The companies that created so much of this waste are now entrusted with designing systems to control the costs of health care?  We’d better be watching.


From his perch as the next chair of the Senate Armed Services Committee, Sen. John McCain (R-Ariz.) plans to be the scourge of waste in defense contracting. Last week he identified one of his main targets: “cost-plus” contracts. This is the practice going back many decades which guarantees that contractors will be paid for all the allowable expenses they incur in the course of building a weapon system plus an agreed-upon profit. It is a system that reduces incentives to control costs. The cost overruns on the F-35 Joint Strike Fighter, for example — the most expensive weapon system and cost-plus contract in history — were reported earlier this year at $163 billion and have climbed since.


McCain told CongressWatch that he wants to ban all cost-plus contracts: “If you don’t ban them, here’s what happens: They come in with a lowball contract, so they can get the contract, and then that’s why the costs mount.”


Now back to those call centers that General Dynamics is staffing for The last line in the Post article reports that the company’s contract with the Department of Health and Human Services is indeed “cost-plus.”


While McCain is mounting his charge against Pentagon waste and these contracts in the Armed Services Committee, his colleagues over at the Health, Education, Labor and Pensions Committee — now charged with oversight of health care contracts performed by defense contractors — had better be doing the same.


Miriam Pemberton is a research fellow and director of the Peace Economy Transitions project.

This article first appeared in the IPS. Click here to go to the original.

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