AETNA Lost TRICARE Contract Due To Conflict Of Interest

Last spring the United States Department of Defense awarded several contracts to manage their TRICARE health insurance program. TRICARE covers military members, their dependents and retirees. These large, multi-year contracts are to manage one of the four regions that the U.S. is divided into. At least two of the losing bidders protested the awards and these protest have been upheld in the last month by the Government Accountability Office (GAO).

In the second case Health Net (HNT) protest of an award to Aetna (AET) was upheld. Health Net had been the incumbent. Now the GAO has released their reasons for sustaining the protest of the two billion or more contract.

First and foremost it turns out that Aetna had hired a former TRICARE employee who possessed knowledge of Health Net's performance on past contracts. Supposedly the Government was not aware of this person's involvement which if it had been known would have affected the source selection process. The GAO also felt that past performance and pricing data was not evaluated properly by TRICARE giving Aetna higher ratings then may have been deserved.

The GAO has found the process so flawed and Aetna's hiring of the former civil servant so serious that they are recommending that Aetna "be excluded from the competition, leaving Health Net "as the only viable awardee." This is basically tantamount to telling the Government to award the contract to Health Net. This would be a major win for the company as the loss of the $2.8 billion contract to Aetna dealt the company a serious blow as it relied on TRICARE for a significant part of its revenue.

The GAO has not yet provided details of its earlier upholding of the protest by Humana (HUM) but one cannot imagine it was for something as serious as this. It is possible that the pricing and prior experience evaluations were similarly flawed and might account for the decision.

Companies certainly have the right to hire former civil servants as they often have experience and knowledge necessary to deliver what the government desires. In cases like this though they should not be advising or participating in contract proposals or bids where there inside knowledge might provide an advantage to one company over another. The GAO's report reflects badly on Aetna and the government personnel involved in the evaluation and award.