Healthcare Government Contracts: The $90 Billion Market for Medical Service Providers

Most physicians, staffing firms, and medical equipment suppliers think of the federal government as a payer — Medicare reimbursements, Medicaid claims, insurance billing. That is only half the picture. The federal government is also a direct buyer of healthcare services through procurement contracts, and that market is enormous.

Across the Department of Veterans Affairs, the Defense Health Agency, the Department of Health and Human Services, and dozens of smaller agencies, the federal government purchases healthcare services, medical equipment, staffing, health IT, facility management, and clinical support directly through contracts. Federal healthcare contract spending has grown steadily — driven by an aging veteran population, expanded military health benefits, and HHS programs that have scaled dramatically over the past decade.

The federal government obligates roughly $681 billion in prime contracts annually across all sectors (FY2025 data, per fed-spend.com). Healthcare — including medical services, health IT, staffing, and supplies — consistently ranks among the top spending categories. HHS and VA alone appear in the top five federal contracting agencies by prime award dollars.

What makes this particularly valuable for small businesses: the government is legally required to direct a portion of contract dollars to small businesses. Federal law sets a 23% small business prime contracting goal, with sub-goals for specific certifications. Healthcare agencies like VA have historically exceeded those goals, with a particular emphasis on veteran-owned businesses.

If you provide medical services, health staffing, clinical support, behavioral health, home health care, medical devices, or healthcare IT — and you have not explored federal contracts — you are leaving a significant revenue stream untouched.

Federal healthcare contracting is not monolithic. Three agencies account for the vast majority of spending, and each operates with its own priorities, procurement systems, and contractor preferences. Know which one fits your business before you start bidding.

Beyond these three, other agencies procure healthcare services at scale: the Department of Homeland Security (immigration medical services), Bureau of Prisons (correctional healthcare), and the Indian Health Service. But for most healthcare businesses entering federal contracting for the first time, VA and DHA are where you start.

Your NAICS codes determine which opportunities you can compete for and whether you qualify as a small business for set-asides. Healthcare businesses often underestimate how many relevant codes apply to them. Register every applicable code on SAM.gov — there is no penalty for having multiple codes, and each one opens a different pool of set-aside opportunities.

If you are not sure which NAICS codes to register or whether you qualify as small under each one, use CapturePilot's Quick Checker to run an instant eligibility assessment before you update SAM.gov.

The Department of Veterans Affairs is the single most important agency for healthcare businesses entering federal contracting. It spends approximately $35 billion in contracts annually and has a legal mandate — unlike any other federal agency — to give preference to service-disabled veteran-owned small businesses (SDVOSB) and veteran-owned small businesses (VOSB) whenever two or more such firms can compete at a fair and reasonable price.

This is the VA Rule of Two. In practice, it means VA contracting officers must set contracts aside for SDVOSB or VOSB vendors whenever the market research supports it — before considering any other small business program, and before opening to full and open competition. If you are veteran-owned and pursuing VA healthcare work, your VOSB or SDVOSB certification is not just a nice-to-have. It is a competitive necessity.

The VA also maintains the Federal Supply Schedule (FSS), a procurement vehicle through its National Acquisition Center that allows VA facilities — and other government agencies — to purchase medical equipment, supplies, services, and pharmaceuticals directly from commercial suppliers at pre-negotiated prices. If you sell medical products, getting on the relevant FSS schedule is one of the fastest ways to generate recurring federal revenue without competing for individual contracts.

For community-based care, the VA's Community Care Network (CCN) channels veterans to approved private providers when VA facilities cannot meet demand. If you are a clinical provider — physician group, behavioral health practice, physical therapy clinic — becoming a CCN-authorized provider is a separate but parallel revenue stream from the contracting system. Both are worth pursuing.

The Defense Health Agency manages healthcare for 9.5 million beneficiaries — active duty service members, retirees, and their families — through the Military Health System (MHS). The FY2025 Defense Health Program budget request was $40.3 billion. And the Military Health System purchases more than 65% of total care from the private sector through tailored contracts.

The two anchor contracts are TRICARE East (Humana, worth up to $70.8 billion over nine years, covering 5 million+ beneficiaries) and TRICARE West (TriWest Healthcare Alliance, covering 2.8 million beneficiaries). These managed care support contracts are too large for most small businesses to pursue as primes, but they generate substantial subcontracting opportunities for clinical providers, staffing firms, and healthcare IT companies.

For healthcare IT companies: DHA is one of the largest buyers of health information technology in the world. The ongoing rollout of MHS GENESIS (the DoD's implementation of Cerner's electronic health record system) across military treatment facilities has generated a wave of training, configuration, integration, and support contracting opportunities that flow through both direct DHA contracts and GWAC task orders.

Find DHA-specific opportunities through DHA's contractor portal and through SAM.gov. DHA also maintains a list of expiring contracts — a critical resource for identifying recompete opportunities where you can challenge the incumbent.

The Department of Health and Human Services is the largest public health agency in the world by budget. Total HHS spending in FY2025 approached $846.8 billion — but the vast majority of that is mandatory entitlement spending (Medicare, Medicaid). The procurement contracts — where your business competes — sit inside that total and represent tens of billions in direct awards to private sector firms.

Three agencies account for 75% of HHS contract obligations: CDC, NIH, and CMS. Each has a distinct buying profile.

Federal law requires at least 23% of prime contract dollars to be awarded to small businesses annually, with sub-goals for specific categories. The government has exceeded this goal every year since 2013. In healthcare — where many clinical services naturally fit small or mid-size providers — set-aside contracts are common.

The 8(a) program deserves special attention for healthcare companies. Sole-source 8(a) awards — where the government gives you a contract without competition — are available up to $25 million for services. Many healthcare contracts fall in that range, and 8(a) companies receive them without writing a competitive proposal. If your healthcare business is SBA-eligible, the 8(a) application is worth the effort.

Not sure which certifications you qualify for? Use CapturePilot's Quick Checker to run your eligibility across all major set-aside programs based on your actual business profile — not a generic questionnaire.

Federal healthcare contracting runs heavily on IDIQ contract vehicles — indefinite delivery, indefinite quantity contracts where approved vendors compete for task orders over years. Getting on the right vehicles early is often more important than winning any single contract.

Tracking which vehicles are open for new vendors, which are in on-ramp periods, and which task orders are being released is one of the most time-consuming parts of federal healthcare contracting. Use CapturePilot's market intelligence to get automated alerts when vehicles relevant to your NAICS codes post new task orders or on-ramp solicitations.

Federal healthcare proposals are evaluated differently from commercial bids. Price matters, but it rarely wins alone. Evaluators weigh technical approach, past performance, staffing qualifications, quality management systems, and compliance with accreditation and regulatory requirements. Here is what separates winners from also-rans.

Need a proposal template to get started fast? CapturePilot's proposal template is built around federal evaluation criteria — so you address what evaluators are actually scoring.

Most healthcare businesses that fail at federal contracting fail at the beginning — they pick the wrong target, skip essential registrations, or bid without understanding the evaluation criteria. Here is a realistic step-by-step path that works.

Want a personalized checklist for your specific healthcare business? Use the CapturePilot bid readiness checklist to identify the gaps before you put your first proposal in front of a federal evaluator.