TRICARE Contract Awards To Be Reviewed And Possibly Recompeted

(MoneyWatch)  The U.S. Department of Defense is moving to resolve its issues with the TRICARE management contracts awarded this Spring. TRICARE is a managed health program used by the U.S. military, their dependents and retirees. The Department awarded various regional contracts early this year to various health insurance companies to administer this program. Two of the incumbents protested the awards and these have been sustained. Now the Government has decided to move out on correcting the problems that led to the protest.

TRICARE due to the changing demographics of the U.S. military is a growing cost to the Defense budget. The U.S. military is adding more soldiers, many of them are married with dependents and there are more retirees and wounded entering the population due to the fighting in Afghanistan and Iraq. All of these place a load on TRICARE requiring more spending.

The regional contracts are quite large. Over $2 billion a year for the South and West regions where the awards to the new companies were protested. Humana (HUM) was the incumbent and lost the five year contract to UnitedHealth Group (UHG). Their protest of the award was upheld by the Government Accountability Office (GAO) and Humana has remained operating it while the issue is resolved.

The Tricare Management Activity (TMA) recently informed Humana that the government will take corrective action with the source selection and award. This is in accordance with the guidance of the GAO in their review of the protest. Humana's work in TRICARE has helped its bottom line and the continued efforts on the South contract while the protest is resolved hasn't hurt either.

There continues to be no word on what the Government intends to do with the other successful protest. In the North Aetna (AET) won the contract from incumbent Health Net (HNT). The GAO said when they sustained the protest that Aetna had profited from hiring a former TMA employee who gave confidential information that influenced how the bid was prepared and may have affected the source selection. That Office actually recommended to the TMA that they give the contract to Health Net and not go through a source selection process again due to Aetna's problems with their bid.

These contract due to the size are very important to the companies managing them. The Government at the same time should be getting the best product at the best price. It looks like their were wholesale issues with the source selection process and the TMA should go back and review the bids and awards.

Updated to clarify that Aetna won the North contract instead of the West as improperly stated.