Winner of $25 billion Tricare contract still in doubt

A $25.3 billion contract to administer Tricare across the South remains in dispute despite a nearly two-year review of the original bid.

Humana won a challenge in late February to a bid awarded to UnitedHealth Group, but United on March 7 filed a formal protest with the Government Accountability Office to appeal the reversal.

Tricare is the government health insurance for active-duty military, their dependents and retirees. Three managed care companies administer Tricare benefits, each with a region of the U.S. -- West, North and South.

New five-year Tricare contracts, awarded in July 2009, were supposed to take effect in April 2010. Aetna won the North contract, UnitedHealth Group the South, and the current contractor, TriWest Healthcare Alliance, was selected to continue as contractor for the West.

UnitedHealth Group filed an "agency-level" protest of the $17 billion Western region contract, asking Tricare to review its decision. The appeal is pending.

Health Net and Humana -- the current contractors for the North and South regions, respectively -- filed protests with the Government Accountability Office, challenging the awards for contracts in their respective regions.

Humana claimed that when Tricare evaluated its bids, it didn't give Humana enough credit for promised cost savings. Health Net protested on the grounds that Aetna had hired a former Tricare official to help craft its bid and therefore had an unfair advantage.

The GAO upheld Health Net's and Humana's protests and recommended that the Dept. of Defense's Tricare Management Activity review and re-bid the contracts.

Tricare re-awarded the North region contract, worth an estimated $17.2 billion over five years, to Health Net in May 2010.

On Feb. 25, Tricare announced that it would change its decision in the South region, awarding the next contract to Humana rather than United. The new contract will begin April 1, 2012.

But UnitedHealth Group will fight the decision, said company spokesman Matthew Burns.

"The Dept. of Defense had it right nearly two years ago when they awarded this contract to our company," Burns said in a prepared statement. "We disagree with this change in course, which resulted from a flawed, uneven and extensive appeals process. We will aggressively pursue all options available to us."

In the meantime, physicians probably will not notice any changes. Humana has administered benefits in the South region for 3 million beneficiaries in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and most of Texas since 1996. It has continued to run the program under contract extensions during the appeals review process and probably would continue to do so under contract extensions in the case of an appeal by United.

Tricare physician and hospital payment rates are tied to Medicare where possible, although Tricare has the authority to change them to ensure network adequacy or address access problems.

After the Feb. 25 announcement, Humana boosted its anticipated profits for 2011 by 25 cents per share to between $5.95 and $6.15 per share for the year in response to the decision. Investment analysts followed suit.