UnitedHealth Sues US Defense Department Over Award of $23.5 Billion Military Contract to Humana

UnitedHealthcare is suing the U.S. Department of Defense over its award of the TRICARE South Region health care administrative services contract valued at $23.5 billion to Humana Inc.

Filed in the U.S. Court of Federal Claims, UnitedHealth's lawsuit follows a recent decision by the U.S. Government Accountability Office to uphold the DoD's award of the contract to Humana, rejecting UnitedHealth's protest of that award (BestWire, June 15, 2011). TRICARE is the health insurance program for active-duty and retired military service members and their families.

The deficiencies in the contracting process were too "significant for the Department of Defense to proceed with implementing this contract as it stands," said Lori McDougal, chief executive officer of UnitedHealthcare's military health division, in a statement. "The Pentagon disregarded its own stated goals for this contract, and military families' access to quality health care in the South will be put at risk as a result."

According to UnitedHealth, a recent report from the GAO explored access to health care under TRICARE and found that low reimbursement rates have made it more difficult for beneficiaries in this program to find providers.

Humana Military Healthcare Services, a unit of Humana (NYSE: HUM), has been the DoD contractor administering the program since 1996.

Attempts to speak with Humana were unsuccessful. The new five-year contract is scheduled to begin on April 1, 2012, and will cover health care services for 3 million active-duty and retired military service members in the 10-state area that comprises the South region, the company previously said (BestWire, June 15, 2011).

Humana Military had filed a protest in July 2009 over the contract being awarded to UnitedHealth Military & Veterans Services, a unit of UnitedHealth (NYSE: UNH). That move prompted the GAO to re-evaluate existing proposals, and also enabled Humana Military to submit a revised final proposal (BestWire, May 10, 2010). In February, DoD's TRICARE Management Activity reversed its selection of UnitedHealthcare and retained Humana Military.

In April, UnitedHealth won a protest of a medical-services contract worth about $17 billion over about five years, convincing the Pentagon to reconsider its decision to award the contract to TriWest Healthcare Alliance (BestWire, April 8. 2011). The protest centered upon the 2009 award of the TRICARE West region contract.

In its latest statement, UnitedHealthcare said the Pentagon has indicated it is "inviting offerors to guarantee cuts in payments to doctors and hospitals in the TRICARE West network."

In July 2009, TriWest Healthcare was awarded the five-year contract, which at that time was valued at about $16 billion. TriWest Healthcare, a consortium of Blue plans and affiliated with Blue Shield of California, was the only incumbent the DoD renewed. The contract is for the 21-state West region and covered nearly 2.7 million military personnel and their dependents, Blue Shield said at that time (BestWire, July 15, 2009).

On the afternoon of June 22, UnitedHealth Group's stock was trading at $52.36 a share, up 0.27% from the previous close. Humana Inc.'s stock was trading at $83.70, up 1.3% from the previous close.

UnitedHealthcare Insurance Co. currently has a Best's Financial Strength Rating of A (Excellent). Humana Health Plan Inc. currently has a Best's Financial Strength Rating of A- (Excellent). Blue Shield of California Life & Health Insurance currently has a Best's Financial Strength Rating of A (Excellent).

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])