Health Net wins back military health care deal

One of three ongoing disputes over who will administer military health benefits was resolved when Health Net won back the contract it initially lost in July 2009 to Aetna.

The U.S. Dept. of Defense terminated a $16.7 billion contract with Aetna to administer Tricare military health benefits in its North region. The move came after a review by the Government Accountability Office agreed with Health Net's protest over alleged improprieties on Aetna's part during the bidding for the five-year contract.

Health Net, which serves more than 3 million Tricare beneficiaries in 20 East Coast and Midwest states, based its dispute on Aetna's hiring of a former executive of Tricare Management Activity, which manages Tricare. Health Net argued that the former Tricare executive had access to inside information, including details of Health Net's performance of its current Tricare contract, giving Aetna an unfair advantage.

The GAO sustained Health Net's bid protest in November 2009 and recommended that Aetna be excluded from the bidding.

Tricare announced in January that it would extend Health Net's current contract through March 31, 2011, while it considered the GAO's recommendations.

On May 5, Tricare announced that the contract with Aetna would be terminated and that it intended to award the contract to Health Net.

"It was definitely a big deal for us," said Health Net spokeswoman Molly Tuttle. "It's been a long road."

"We are extremely disappointed with this decision," said Susan Peters, president of Aetna Government Health Plans, in a prepared statement. "During the procurement process, Aetna took a number of actions to ensure compliance with the Dept. of Defense requirements."

Peters said the company acted appropriately and never used nonpublic information to prepare its bid. Aetna had no further comment on the decision.

Tricare is split into three regions: West, North and South. Health Net's contract covers the North region. Contracts for Tricare's other two regions remain in dispute.

All three contracts were awarded in July 2009 and originally were slated for completion on April 1. Protests filed on all three contracts put those plans on hold.

When it announced that it was sustaining Health Net's protest in November 2009, the GAO also sustained a protest filed by incumbent contractor Humana, which lost out to UnitedHealth Group for a contract covering the South region and worth an estimated $21.8 billion over five years.

Tricare issued an amended request for proposals for the South region, to which the original bidders, including UnitedHealth Group, will have the opportunity to respond. Meantime, Humana was granted a one-year extension to its existing contract while Tricare considers the new bids.

An agency-level protest regarding the West region contract award to the incumbent contractor, TriWest Healthcare Alliance, was pending as of this article's deadline.

The contracts are a significant source of revenue for health plans that receive them. According to Fitch Ratings, Tricare business accounted for more than 55% of Health Net's total enrollment and generated $165 million in pre-tax revenue in 2009.

Fitch downgraded the ratings of Health Net after it initially lost the Tricare contract. After the recent announcement, it placed Health Net on a list of stocks to watch. It says Health Net's rating may be upgraded depending on projected earnings, cash flow and risk-sharing provisions that are not yet known.

For Humana, analysts estimate that the health plan's earnings will rise about 10 cents per share for each quarter it holds on to the Tricare contract.