You might think healthcare companies –the bane of many who support socialized medicine – hit the jackpot with ObamaCare. The real winners though don’t have the words “health”, “hospital”, or “care” in their names. They are federal contractors who have cashed in on massive grants for the expansion of Medicaid and the execution of ObamaCare.
A new report by Kaiser Health and the Washington Post finds that as federal budgets have been frozen, spending sequestered, and military conflicts wound down, contractors have wised up and shifted from traditional bread-and-butter contracts from defense spending to explore new opportunities in the world of health services and processes.
In the case of one of the biggest federal contractors, General Dynamics, they skirted a $2 billion quarterly loss and now have $815 million in spending commitments related to ObamaCare implementation – not their total budget but it’s growing. They – like others- have shifted to buying up companies that offer health-related goods and services to expand their portfolio. So for example, when healthcare.gov crashed last fall, they hired 8,000 mostly temporary workers to run hotlines for customers seeking ObamaCare and Medicare.
This isn’t just one contractor cashing out. There’s a growing list of contractors who are shifting from creating military planes and bombs to cyber security and healthcare. There’s new revenue for contractors in buying medical-record software, insurance websites, claims processing, data analysis, computer system overhauls, consumer education, and consulting expertise to control costs and identify fraud. All made possible by the expansion of Health and human Services (HHS).
HHS is the No. 3 contracting agency thanks to ObamaCare and the expansion in Medicare’s prescription drug program under President George W. Bush. Its spending has doubled to $21 billion annually and is expected to continue to rise. This is still separate from the billions it pays in reimbursement to caregivers of Medicare patients, grants to states for Medicaid, and awards through the National Institutes of Health to clinical research institutions.
There’s a lot of money to be made and federal contractors see healthcare spending as “new oil.”
… In a way that is deeply changing Washington contracting, growth opportunities from the federal government have increasingly come not from war but from healing, an examination by Kaiser Health News and The Washington Post shows.
Politics are frozen. Budgets are tight. But business purchases by the Department of Health and Human Services have doubled to $21 billion annually in the last decade and are expected to continue rising.
If health care is "the new oil," as some investors hope, HHS is one of the richest fields — along with massive opportunities in health-related computer spending by the departments of Defense, Veterans Affairs and Treasury.
True, it's a fraction of the $200 billion-plus the Pentagon spent on planes, bombs and other purchases in fiscal 2014. But thanks largely to automatic cuts set in 2011, defense contracting has dipped by more than a third since 2008 despite continuing conflict in Afghanistan and the Middle East.
Few expect that to happen to health contracting — even with limited budgets and Republicans opposed to the health law controlling both sides of Congress. Analysts expect the Ebola crisis to add billions more to an HHS budget that was already expected to grow.
Traditionally HHS vendors processed Medicare claims, made vaccines and managed information technology. HHS spending had already spiked in 2009, before the health law was passed, thanks to extraordinary purchases of H1N1 flu vaccines. But the ambitious ACA, intended to expand health coverage, overhaul payments and reengineer care — and with ample budgets to attempt all three — changed the game.
We can’t fault private sector companies for engaging in the marketplace. If they find a willing customer, it’s economically smart to adjust their business practices to stay in business.
The problem is the expansion of federal spending in healthcare in general thanks to big spending programs like ObamaCare. The unintended consequence of the president’s signature healthcare law was that it generated a whole new world of demands for services in IT and health care services. That’s great for that industry but not for taxpayers who are funding this.
Some government spending enthusiasts think stimulating economic activity by creating demand (Keynesian economics) is good for the economy. However, that is artificially injecting spending of government dollars by shifting those dollars from individuals and companies through higher taxes. That is not the same as generating new economic activity.
And these contractors have no incentive to deliver the best, most efficient products and services because they know they’ll get paid regardless. That’s the problem we saw with the contractor that created the healthcare.gov website, CGI Federal. The government is woeful at picking the best providers of services, they usually go with what they know at a loss to taxpayers.
Government contracting needs reform, but that’s an ancillary issue to the fundamental issue of the role of government in this area of healthcare.