Sierra Military Health Services Inc. tomorrow begins providing health care to as many as 600,000 military dependents and retirees in a 13-state region, capping an eight-month race to get ready for its official start of business.
Just last September, when it won the five-year, $1.2 billion military contract, Sierra Military was a fledgling operation with only seven employees. It quickly selected Baltimore as its headquarters, and began moving through a vast list of tasks spelled out in voluminous contracts and regulations.
For Sierra Health Services Inc., a managed care company that is Sierra Military's parent, the stakes are high. It has spent, according to filings with the Securities and Exchange Commission, more than $18 million on its bid and start-up expenses. The military contract boosted Sierra Health's subscribers by about one-third virtually overnight, and the Las Vegas-based company hopes to use its new East Coast beachhead to gain national visibility.
Serving a region that includes the Pentagon and "134 congressional districts," said David R. Nelson, president of Sierra Military, "we have to get it right the first time."
The stakes are also high for Baltimore, which kicked in a half-million-dollar package of loans, grants and job training to lure Sierra Military and its 300 headquarters jobs. As part of the deal, the city guaranteed a 10-year lease for Sierra's 83,000 square feet in the Candler Building on Market Place. If Sierra doesn't win a contract renewal, the city is on the hook for the remaining five years of the $12.5 million lease.
While stressing his confidence that Sierra can handle the job, Dr. Carl Akins, director of contracting for the Pentagon agency that awarded and monitors the contract, said, "The proof will come Day 1, when we flip the switch."
Whenever a new contractor goes live, he said, "We always cross our fingers -- and our arms and our legs and everything else."
Gearing up to go live has been an enormous undertaking.
Sierra hired and trained (as of May 22) 262 employees to staff its headquarters and 181 more for 32 service centers in a region that stretches from Virginia to Maine. Of those hired, about 100 came from a Baltimore jobs-training program.
Even before it begins offering care, it has been fielding thousands of questions a day about enrollment and other details of how the new program, called Tricare, will function. It's had to sift through the terms of a contract so detailed that it is nearly 4 inches thick. (Example: "The telephone blockage rate at each TricareService Center shall not exceed five percent (5%) and beneficiaries telephoning the Tricare Service Center shall never be placed on hold for more than five (5) minutes.") Not to mention the terms of various Pentagon guidelines and regulations, and the terms of its bid, which filled 38 volumes.
It's had to contract with some 23,000 civilian physicians, hospitals, pharmacies and laboratories. It's had to develop a working relationship with the military hospitals that will be providing the bulk of the care.
It's had to write new software and prepare for connections to military computers, creating a system capable of booking appointments with the civilian doctors and hospitals and at 79 military hospitals and clinics. It's also had to defend itself against a still-unresolved challenge to its contract from the losing bidder.
And, since October, Sierra Military has replaced its president and four key vice presidents. Two new vice presidents, one for government affairs and one for medical affairs, were named as recently as late April.
Nelson, who worked on the Sierra bid as a consultant and was named president of Sierra Military in November, said the turnover is a natural result of shifting from the bid process to health operations. That means, he said, different types of managers. "The skill sets are not necessarily the same," he said.
The previous president, Joseph Lamarca, had been appointed by Dr. Anthony Marlon, the founder and chief executive of Sierra Health, to oversee the bid process, Nelson said.
"Joe was a businessman in Nevada and a trusted confidante of Dr. Marlon," Nelson said. "He was needed as an interim president. He's a very inspirational leader, the kind required during the procurement process." Lamarca, who remains on Sierra Military's board, has returned to Nevada, where he operates a chain of beauty shops and day spas.
Similarly, Nelson continued, several vice presidents found that they were better suited to preparing a bid than to running a health system.
Don Thompson, head of managed care contracts for the military's Tricare agency, said that while some turnover is normal when a plan moves from bidding to execution, Sierra has had more of it than usual.
The Tricare office, which is in Aurora, Colo., has to approve the hiring of key executives.
Several former Sierra Military executives declined comment on the company or their reasons for leaving. Others praised the company and said they were confident that it would perform well.
On top of the turnover, Sierra Military reorganized its management structure. "We found that what we needed to do was not necessarily what we had proposed to the government," Nelson said. So, with the approval of Tricare, it restructured top management, separating some functions that had been combined under one vice president and adding an in-house legal counsel.
Tricare is new ground for Sierra, and nearly so for the military.
The latest version of the Defense Department's program to provide care for dependents of active duty military and for retirees and their dependents, Tricare succeeds the Civilian Health and Medical Program of the Uniformed Services, or CHAMPUS.
The military began a transition to Tricare on a region-by-region basis, starting in 1995. When the Northeast goes on line tomorrow, the shift to Tricare will be complete.
Tricare gets its name from the three options it offers -- a low cost HMO-type plan that uses "gatekeeper" physicians; a preferred-provider plan that allows beneficiaries more choice but requires deductibles and co-payments; and an indemnity-style plan, basically the same as the old CHAMPUS, which has higher out-of-pocket costs. Of the 600,000 dependents and retirees in the region, about half are expected to enroll in the HMO option, called Tricare Prime.
The role of Sierra (and its subcontractors) includes assembling the civilian network, which will provide care for beneficiaries who live far from a military facility. Those who get most of their care in military facilities also may be referred to civilian specialists if needed.
Sierra enrolls the beneficiaries, processes claims and handles HMO-like functions such as authorizations for care.
It trains doctors to handle Tricare and offers "health promotion classes" for beneficiaries. Its 32 service centers place it near all major bases in the region. (Maryland service centers are in Aberdeen, Annapolis, California, Frederick, Odenton, Oxon Hill, Rockville and Silver Spring.)
This is Sierra's first effort as a Tricare prime contractor. Sierra has previously been involved as a subcontractor in the Tricare central region, where it provides care for about 90,000 enrollees in Nevada and Missouri.
Marlon, Sierra's founder and still CEO, is a cardiologist who built a large physician group in Nevada that got an HMO license in 1982. Sierra Health, a publicly traded company since 1985, also has HMO operations in Texas and runs subsidiaries in areas such as home health, hospice care, mental health and workers' compensation.
Sierra invested more than two years and $12 million in its successful bid for the Tricare Northeast region, beating out California-based Foundation Health Federal Services, which holds four other regional Tricare contracts.
At a hearing in February before a House Appropriations subcommittee, David Hobson, an Ohio Republican, questioned award of the contract to Sierra because Marlon had plead guilty in 1991 to a misdemeanor charge of providing false information to the federal government on rates for insurance for federal employees.
As part of that plea agreement, Marlon paid a $25,000 fine and forfeited six months' pay, amounting to $175,000. Sierra paid $500,000 to the federal government for overcharges and agreed to provide another $500,000 in free care for the poor.
At the February hearing, Dr. Edward Martin, acting assistant secretary of defense, said the department's lawyers had advised, "Within the current statutory framework," Dr. Marlon's legal entanglement "could not be a consideration for this particular award."
Foundation also challenged the contract award, complaining about the way in which the competing bids had been evaluated. The General Accounting Office recommended in February that the bids be re-evaluated, but it is currently reviewing that decision at the request of Sierra and the Tricare administration.
There is no deadline for a ruling. In an SEC filing, Sierra said it expects to operate Northeast Tricare for a year even if a re-bid is ordered.
The uncertainty created by the protest has proved "a challenge" in attracting and holding staff, Nelson said.
"We're not thinking everything will be perfect on 1 June; we think it will take a few months to work out some of the rough edges," said Col. Susan McMarlin, director of the lead agent office for the Tricare region. Her office, based at Walter Reed Army Medical Center in Washington, has a staff of 33, representing all the armed services, to monitor the Tricare program in the Northeast. She praised the Sierra staff and said of start-up anxieties, "They're in the same fishbowl the government is in. They're coming across as trying to meet the government."
Similarly, Akins, at Tricare headquarters in Colorado, said, "We guarantee you something will go wrong the first day."
Said Thompson, his colleague: "What makes a good contractor is not whether there are problems, but how quickly they react."
Pub Date: 5/31/98