With all the focus on health care reform and possible expanded role of the Federal Government there is an increasing interest in the role that contractors may play. They already provide management of the military’s TRICARE program for example. Many of the Medicare and Medicaid programs also rely on private contractors to aid in their administration. If there will be a public option included in the near future that may also see a requirement for contractors if only to provide software and other management tools.

One of the major problems faced by these government managed programs is fraud. Fraud in Medicare alone is estimated to be $60 billion a year as this CBS 60 Minutes report highlights. There has been known fraud in Veteran Administration disability payments as well as some in Medicaid. Overall it adds up to a significant chunk of the money the Federal and state governments spend on providing health care. It is safe to assume that if a new, large plan similar to these is set up that fraud would be an issue for it as well.

Many defense contractors provide software and custom tools to the Department of Defense and military services to administer programs similar to managed health care. They have a lot of experience in providing secure and complicated programs. Now General Dynamics, (NYSE:GD) is introducing a suite of software to aid health care companies in detecting fraud and abuse. Interestingly this product is being developed and marketed by the Information Technology’s Civilian/Homeland Security Solutions division.

While this tool is currently being marketed to existing private health management companies it certainly has applicability to the Government. If fraud is going to have to be reduced as a component of paying for the new health care program this is the kind of resource that is going to be required. It is also natural that these companies traditionally building products for the defense market will look to what may be a significantly expanded public spending.

These companies due to their resources and size do have some flexibility to respond to major market changes. They have built up core capabilities that are able to be transferred to other businesses and operations. General Dynamics new software suite is an example of this and will probably be the first of many attempts for Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT) and other defense contractors to gain revenue.