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Long Running Saga of TRICARE Management Contracts Coming to an End?

Updated – To make clear this was an Agency level protest and not a GAO one.

TRICARE is the primary medical insurance program for the United States’ military. It covers those personnel, their dependents and retirees along with selected Reservists and National Guardsmen. It functions like a HMO for its members. The Defense Department divides up the country into regions and awards large contracts to individual health insurers to manage these. In 2009 new contracts were awarded but three of them were protested by different losers. Since then the Department of Defense has been working through the protests and getting new contracts in place.

The contracts are awarded regionally to provide management of care and providers. The West contract was originally won by the incumbent, TriWest, but UnitedHealth Group (UNH) protested. The Department of Defense upheld the protest and the contract was put up for bid again. Again TriWest and UnitedHealth bid on the contract. Now it is expected that a decision on the winner will be made in the near future.

Of course with the history of these contracts there is no guarantee that the loser may protest this decision. With the Southern contract Humana (HUM) and UnitedHealth went trough several iterations as the awards and protests followed each other. The last decision was by a Federal court in October that sided with Humana. This contract was in protest and litigation for over two years.

If the government can make a decision with this contract that sticks it should close out this saga. TRICARE contracts are usually only for five years so the next round should be coming up in 2014-2015. Expect competition to be just as fierce with that round.

Military health care is in transition as the Department of Defense looks for ways to reduce costs. These have increased greatly over the last decade due to the commitments to Iraq and Afghanistan and the larger size of the military. There are also now much more retirees and veterans who need care. In the next budget there is a proposal to increase the co-pays and fees paid by members for their TRICARE. There will also be pressure to reduce payments to service providers.

Even so expect the large health insurance companies compete for these contracts just like the last round.

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UnitedHealthCare Takes Next Step in TRICARE Protest

As we had written last week the Government Accountability Office (GAO) had ruled against UnitedHealthcare’s protest of the award of the Southern Region TRICARE contract. This meant that the contract would go to Humana (HUM) who had actually been the incumbent back in 2009 when the government tried to award the latest group of TRICARE medical management contracts.

TRICARE is the medical insurance program offered by the Pentagon to its active duty members, their dependents, retirees and selected Reservists and National Guardsmen. The country is divided into regions and one insurance company is awarded a contract to manage it. These contracts are quite large in the region of $4-5 billion a year.

In 2009 the government attempted to award new five year contracts for the different regions. Three of the contracts were protested for various reasons but normally because the source selection criteria were not followed correctly. Two of the three have been resolved but the Southern one still remains in a legal battle. Originally Humana lost the contract to UnitedHealthcare but protested. That led to a decision to have a new contest which Humana then one. UnitedHealthcare then protested that decision. The GAO denied the protest and let the award to Humana stand.

Now Unitedhealthcare has decided to sue in the U.S. District Court of Federal Claims which is the next step in the protest process. In their press release from Tuesday the company states: “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.” The company continues to believe that the decision by the government to choose companies for the TRICARE offering low reimbursement rates limits care and choice for the military.

The lawsuit should take a few months to decide and the current TRICARE contract should continue with Humana

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Creative Protest of TRICARE Dental Contract by United Concordia Fails

TRICARE is the primary healthcare provider for the United States’ military, their dependents and retirees. It works similar to a HMO with a network of providers and prescription services to supplement the available military hospitals. TRICARE requires a small co-pay from members for themselves and their dependents. Due to the size of the U.S. military the TRICARE management contracts awarded to commercial providers are quite large. This includes the one to provide dental benefits.

Two years ago the Department awarded new contracts for the various TRICARE regions to manage the system. These contracts were all worth $2-3 billion a year and at least three were protested. Earlier this year the various protests were resolved but there is still an outstanding protest of one of the new contracts awarded due to the protests.

Late last year the TRICARE dental contract was awarded. Unlike the medical ones this pretty much covers everyone in TRICARE in only a single contract rather then having multiple regional ones. It was won by Met Life (MET) over the incumbent, United Concordia Companies Inc., which is part of Highmark Inc. Met Life was awarded the $3.09 billion contract and United Concordia promptly protested.

While Met Life was cheaper then United Concordia the incumbent based part of their protest on the fact that the change in contractors would cause hardship for TRICARE subscribers due to the need for them to potentially change providers. This meant being the incumbent should help the evaluation of their bid. They asked the Government to review how the Source Selection criteria were applied in the decision.

The Government Accountability Office (GAO) denied the protest. They ruled that the contract was awarded properly.

When a contract is re-competed it is easy for the Government to be favorable to the incumbent. These are people they have worked with for several years and trust. The source selection must look past these types of personal relationships and evaluate the bids against the criteria. Often the winner hires most of the former workers and one of the concerns with this contract is that because Met Life’s bid is smaller it may not support the same size workforce as United Concordia did.

If there is really reductions in U.S. defense spending and it is very likely then the chances of protests will increase as there is less work for the same amount of bidders. Each contract becomes more valuable to companies and they will fight hard to get them and if they are the incumbent keep them.

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More TRICARE Dominos Falling as UnitedHealthcare’s 2009 Protest Upheld

TRICARE is the U.S. Department of Defense’s primary health care program for its active duty members, their dependents and retirees. It functions as a sort of HMO and allows personnel to utilize civilian healthcare providers and systems. In the past the military used their own network of doctors, clinics and hospitals for this but began moving to this system thirty years or so ago. Two years ago the Department competed the management contracts for TRICARE.

Four different contracts were awarded and the North, South and West regional ones were protested. The protests were upheld and the incumbents remained operating the contracts while the U.S. decided whether to sustain the award, have a new contest or keep the incumbent.

Those decisions were made for the the North and West protests and now the U.S. has announced a decision on the South award. It has been decided that UnitedHealthcare’s (UNH) protest will be upheld and new contest will have to occur for the South contract. The contract had been won by TriWest Healthcare Alliance but that decision was protested and now won’t stand.

The total value of that contract is $17 billion over the five years so its importance to the companies bottom line is very clear.

Interestingly enough UnitedHealthcare won the Southern contract from Humana (HUM) which was also overturned on that company’s protest. A new contest was held which was won by Humana last month but UnitedHealthcare is protesting that award further delaying the new contract. Humana as the incumbent in 2009 has remained on the contract since then working until all of this is resolved.

In the background to all of this is the fact that the Defense Department and the Services are working to reduce the costs of healthcare as it eats up more of the military budget every year. Proposals include raising co-pays and premiums but until the size of the military starts going down it will be hard to decrease this type of spending.

No matter what it may be until 2012 before the 2009 awards are all resolved and the process illustrates the need for the government to use clear source selection criteria and apply them evenly across all of their decisions.

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Humana TRICARE Contract Faces Protest from UnitedHealth Group

Just when it looked like the last round of TRICARE management contracts had been resolved with the award to Humana (HUM) of the Southern Region contract after a lengthy protest process and review the loser, UnitedHealth Group (UNH), has protested that award.

This is one of several contracts awarded by the Department of Defense to manage what is basically the HMO for military members, their dependents and retirees. The value of the contracts are quite large due to the size of the population being served and this contract is worth $2.5 billion initially and has a total value of over $23 billion if all options are exercised.

In 2009 United won the contract away from incumbent Humana but that company protested and it was upheld. It has taken DOD over a year to resolve the issue ending up with requiring the bidders to submit new proposals. A few weeks ago it was announced that Humana’s bid was chosen over its rival. United is now protesting that award.

The protest is based on the fact that the losing company believes Humana “offered steep discounts in its latest bid that will pay doctors and hospitals below rates paid in the Medicare system.” This could drive providers out of TRICARE and limit care options for the users.

The protest will mean that the new contract will be delayed and the incumbent, Humana, will get basically a bridge to maintain their current services while it is resolved. Depending how it goes the Government Accountability Office (GAO) has the first attempt to review and rule on the protest although it may go further into court. Most protests are resolved within 100 days so there may be a further three months delay before the new contract starts.

If there really is cuts to the U.S. defense budget including attempts to reduce the cost of medical care as proposed by Secretary Gates then protests might become more common. Less big contracts mean their value to an individual company is heightened which leads to a greater need to win them. The potential for changes to the whole health insurance business with the implementation of health care reform also may lead companies to value contracts like this one for their stability and size.

This is now approaching the two year mark for these contracts to be resolved and it could drag out for several more months.

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Humana Continues to Gain Due to TRICARE Contracts

Update – The posted has been updated to clarify the grounds on which the protest was upheld. I had confused the Aetna and Health Net contract.

Over two years ago the U.S. Department of Defense competed a new round of five year TRICARE management contracts. TRICARE is the HMO type health program used as the primary care for active duty military, their dependents, retirees and selected Reserve and National Guard personnel. The country is divided into several regions and different contracts are awarded to companies to manage the program.

These contracts are very large upwards of two billion dollars a year due to the size of the program. Two of the awards were protested by losers and in their case Humana (HUM) was successful. Humana was the incumbent in this case.

The Government Accountability Office (GAO) upheld Humana’s protest on the grounds that the source selection criteria were not applied correctly.

Because of the protests the government has awarded temporary contract extensions to the incumbents to keep the program going while a decision is made. This has worked out well for the company as they went from a situation where they were losing several billion in revenue to where at least temporarily they were keeping the work and probably even expanding it a little as the military’s demand for health care continues to grow.

There won’t be a decision soon as the government just announced that they are awarding yet another extension to Humana. This will be for a further year.

This means that the company has gained two years work or forty percent of the originally planned new contract. The military probably wants to recompete the contract but they need to make sure that they do everything right to avoid a protest as well as probably rewrite the RFP to take into account changes in U.S. health care law and regulation.

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Another Contract to Support Guam’s Expasion

The U.S. as part of a renegotiation of their agreement with Japan has decided to move substantial numbers of Marines and Navy units from Okinawa to Guam. This move is requiring a major expansion of the facilities on the island to handle the tens of thousands of military personnel and their dependents.

As part of this plan the Navy has been awarding several construction and management contracts to a variety of companies. Part of the program will be paid for with funds from the Japanese Government as part of the new agreement. The much more controversial part of this plan is the relocation of the main Marine Corps’ air station on Okinawa proper as that will remain there.

To help facilitate the construction and move the Navy gave SSFM International a construction management contract. This contract is worth $40 million. SSFM is a Hawaii based company that has received substantial contracts to build infrastructure and military projects in that state and across the Pacific.

The expansion of Guam will cost billions of dollars over the next few years and represents one of the largest U.S. efforts to build facilities in recent time. There will be many more contracts like this to help the military manage the construction program.

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Protest Strikes Sweden’s Contract with Patria Again

The U.S. Government has seen an increase in contract protests over the last ten years. This has been especially true with defense contracts. The situation reached a point that late last year the Defense Department’s Undersecretary of Defense for Acquisition, Logistics and Technology, Ashton Carter, actually complained about the problem they had become. Protests of awards while perfectly legal lead to delays in the start of work by the winner and in the case of the KC-X aerial tanker program cause the contest to start over causing major delays to the fielding of a new aircraft.

One of the major reasons for the amount of protests is the small number of large contracts available to be won. This means that each and every win is more important to a company’s bottom line. It is not even with just hardware contracts that you see protests but also with service ones. The last round of TRICARE health care management contracts led to protests some of which were upheld. These contracts were worth billions and the competition was pretty fierce. Now it has become almost expected that the loser of a contract will protest the decision.

It is not only in America though that the problem of protests exists. Sweden had awarded a contract earlier this month to Finnish company Patria Land and Armament Oyj for over a hundred new armored vehicles. The contract has a total value of over $300 million. Now an unidentified Swedish company is protesting the award.

As part of the contract Patria offered to offset the cost of the contract with one hundred percent investment in Sweden’s economy including using Swedish sub-contractors for major components.

The AMV vehicle has been in production for several years and over 1,000 have been ordered since 2004. Interestingly Patria won this contract in 2009 but a protest by BAE Systems Hagglunds, a component of Great Britain’s defense giant, BAE Systems (BAE:LSE), caused a recompete won again by Patria.

In the worst case this protest could lead to another competition delaying the start of the program by another year. Certainly competitors have the right to protest especially if they feel the award was not conducted properly but it does in the end delay the delivery of the hardware which in some cases is necessary for the modern battlefield.

Photo from hr.icio’s flickr photostream.

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Shoe Drops For Aetna As Government Decides, No Tricare For You

May 7, 2010 by · Comment
Filed under: BNET, Syndicated Industry News 

Last year the government awarded several new TRICARE management contracts. TRICARE is the military HMO basically and two of these awards were protested. Both protests were upheld. Aetna due to…

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Shoe Drops For Aetna As Government Decides, No Tricare For You

May 6, 2010 by · Comment
Filed under: BNET, Syndicated Industry News 

Last year the government awarded several new TRICARE management contracts. TRICARE is the military HMO basically and two of these awards were…

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Humana Gets Reprieve from Pentagon but not from the Market

February 23, 2010 by · Comment
Filed under: BNET 

Humana is still waiting to hear the results of the Government review of the award last year of TRICARE management contracts. It still has a chance…

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Second TRICARE Protest Sustained For Health Net Raises Issues With Whole Process

November 5, 2009 by · Comment
Filed under: BNET 

A second of the three protests for the TRICARE management contracts awarded by the U.S. Department of Defense earlier this year was sustained….

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U.S. TRICARE Contract Protest By Humana Upheld

November 2, 2009 by · Comment
Filed under: BNET, Syndicated Industry News 

In July Humana was one of three losing bidders on TRICARE management contracts to protest. They announced last week that their protest was upheld….

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