Tricare contracts may be re-bid after losing plans protest

About $40 billion in contracts to treat military members and their families might be put back into play.

By Emily Berry — Posted Nov. 23, 2009

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U.S. government officials must decide whether to re-bid at least one of two disputed health plan contracts for managing Tricare, the health plan for military service members, their families and survivors.

Humana had administered benefits in Tricare's South region and Health Net in the North region since 1996, but the two incumbents lost out to UnitedHealth Group and Aetna, respectively, in bids for the next set of five-year contracts.

The Government Accountability Office sustained a protest from Humana and recommended that the Tricare Management Agency, part of the U.S. Dept. of Defense, reevaluate bids for the South region.

The GAO also sustained a protest from Health Net, but its full decision on the award process -- including whether to recommend reevaluating bids for the North region -- wasn't available by this article's deadline.

The disputed contracts are worth as much as $16.7 billion for the North and $21.8 billion for the South over five years, according to government estimates.

The income from Tricare was significant for both Humana and Health Net. When the companies lost the bids, industry analysts speculated one or both might be targets for acquisition by larger insurers, including Aetna and UnitedHealth Group.

Humana collected $2.6 billion in premiums from Tricare for the first nine months of 2009, which was 11.3% of its total premiums and administrative service fees. Humana's total revenue during that time was about $17.4 billion. UnitedHealth Group's revenue over the same period was about $65.4 billion.

Health Net's $2.3 billion in revenue from Tricare made up about 20% of its $11.9 billion total revenue for the first nine months of the year. Rival bidder Aetna took in $26 billion in revenue over that period.

Health Net had protested that Aetna had an unfair advantage in the bid process because the government posted Health Net's bid price online.

Golden said 15% to 20% of bid award protests are sustained.

A partially redacted version of the GAO's decision on Humana's protest, made public Nov. 9, said the Tricare Management Authority, in evaluating the proposals, failed to consider the extent to which Humana could drive down costs through network discounts from doctors and hospitals.

The GAO recommended that Tricare reconsider the bids and cancel United's contract if it turns out not to be the best value for the government.

In response to the GAO's decision to sustain the protest, UnitedHealth Military & Veterans Services CEO Lori McDougal said in a statement that the company "made a very strong proposal to the Dept. of Defense. We stand ready to support the health care needs of our nation's service members, retirees and their families."

In a statement, Susan M. Peters, president of Aetna Government Health Plans, said the company "is extremely proud of the strong proposal we submitted to the Dept. of Defense."

Health Net declined to comment on the GAO's decision. In filings with the Securities and Exchange Commission, the company noted it was still unsure of the ultimate financial effect of the decision.

Even if the contracts are not re-bid or awarded to Humana and Health Net, there likely will be a lengthy delay in transitioning to the next contract period.

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