U.S. TRICARE Contract Protest By Humana Upheld

TRICARE is the program utilized by the Department of Defense to provide medical care for its members, retirees and dependents. It was established in 1993 as a replacement for an earlier program called CHAMPUS. It allows the use of private doctors and facilities within the network as a supplement to the medical capabilities of its bases. In the past the on-base capability would have provided all of the primary care for service members and their families. As bases closed and the pool of people receiving treatment expanded TRICARE grew-and-grew.

To manage the program the Department issues several contracts to health insurance companies that cover a region of the United States or overseas activities. In the Spring the latest round of contracts were awarded to different companies. The South Region contract was awarded to a division of UnitedHealth Group (UNH) called UnitedHealth Military & Veterans Services. This contract was previously held by Humana (HUM). This was the first involvement of UnitedHealth in TRICARE management.

Humana protested the award to the new company of the contract which ultimately could have a value of over $21 billion. The basis for the protest was issues with how the criteria and requirements contained in the Request for Proposal (RFP) were applied in the source selection. Unless there is a blatant unfairness most protests revolve around this kind of problem. All proposals are supposed to be evaluated and the criteria applied evenly.

At the end of last week Humana announced that it had been told that the Government Accountability Office (GAO) had ruled in their favor. This is the first of three separate protests filed over the July awards to have a ruling issued. This is also the first time in the program's sixteen year history that protest was upheld. In 2003 a similar protest was denied by the GAO.

The result of the protest most likely will be a re-competition as in the case of the much more famous KC-X contract of last year. It is also possible that Humana could just be given the contract but this is a very rare result of contract protests. Normally the incumbent continues the contract throughout the protest period as the new company cannot start it so Humana should have kept going under the old contract conditions.

Health Net (HNT) protested the award of the Western District contract to Aetna (AET) as well in July. This contract is also worth close to $20 billion if all options are exercised. That protest is yet to be resolved.

It is not known how the current plans for reform of the U.S. health care system working their ways through Congress will affect TRICARE and these types of contracts. Although looking at page 159 of the House's bill it seems that those under TRICARE will continue to get their care through that program. That program along with the VA, MEDICARE and MEDICAID will be considered "acceptable coverage" and may continue. Although if some sort of public option emerges at the end of the process it might make sense to begin moving people on to that rather then the specific existing systems if there are cost savings.

The size of these contracts make them very desirable for companies. That is why there was a flurry of protests in the last round. The fact that health insurance companies are facing an uncertain future only makes them more attractive. This puts the onus on the government to make sure that they do the source selection properly and award correctly.