Companies Continue Fights for U.S. Military Health Care Contracts

by: Matthew Potter
June 27, 2011

Category: Business Line, Companies, Contract Additions, Contract Awards, Department of Defense, Editorial, Events, Federal Budget Process, IT, logistics, medicine, Protest, Services | RSS 2.0

The United States’ Department of Defense spends a great deal of money on health care. They are responsible for not only the active duty members but also their dependents, retirees as well as National Guardsmen and Reservists. The fighting since 9/11 has seen the expansion of the size of the military. Many personnel have families. There has also been an increase in the number of wounded and those needing long term car. The sustained fighting and activity also caused more retirees. Combined these pressures have required that total spending dramatically increase. In 2010 it was almost $50 billion or roughly 8 percent of the defense budget.

This has been recognized by leadership such as departing Secretary of Defense Robert Gates and some moves have been proposed to reduce spending or slow the rate of growth. If changes are not made then more-and-more of available funding will go for personnel related matters leaving less for investment in new weapons and technology. At the same time the growth has made this an attractive area for large U.S. health insurance companies and they are currently fighting over the contracts to manage the health care program.

The basic program used to do this is called TRICARE. It is like a large HMO that requires the military participants to pay a small upfront fee and then co-pays for visits and services. Because the military is so large and geographically diverse the Department of Defense centrally manages the program and divides the U.S. into regions with a contract for each. There are also omnibus contracts for overseas and dental care. The contracts average values of $4-5 billion a year.

In 2009 the Department went ahead and awarded the next set of five year contracts for the different regions. These were bid on by familiar insurance companies such as Aetna (AET), Humana (HUM) and UnitedHealth. In the late summer the winners were announced and often the incumbent did not retain the contract. Immediately several protests were filed by the losers.

Incredibly two of these protests remain unsettled today almost two years later. That indicates the importance of these contracts to the providers. In a time when the entire health care market in the U.S. is about to see radical change TRICARE does offer some stability at least for the next several years and may provide a decent source of revenues and income for these companies to offset future changes in the civilian market.

UnitedHealthCare is pursuing protests for the South and West contracts. The South has now gone through two source selection cycles with UnitedHealth winning the first one over Humana who protested which led to a new competition. This was awarded to Humana in March and that was protested by UnitedHealth. The Government Accountability Office (GAO) upheld the award and UnitedHealth has now sued in Federal Court which is the final step in the protest process. UnitedHealth believes that Humana in order to minimize costs has reduced the proposed payments to providers to such an extent that few if any will accept TRICARE patients leading to poorer choice for military members. The GAO did not sustain that argument.

UnitedHealth and Humana have also been fighting over the West contract. Here UnitedHealth was the incumbent and Humana won the new contract. That protest has also led to a decision to have a new contest that is yet to occur.

The size of the TRICARE management contracts and their value has caused those companies involved in them to try to win and keep them. Despite pressure by the Defense Department to reduce costs they are expected to remain sizable for a variety of reasons. They offer some stability as the U.S. moves to reform the civilian market. It can be expected that these protests will continue for the next few months as the contract awards are worked through.

Article first published as Companies Continue Fights for U.S. Military Health Care Contracts on Technorati.

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