Aetna, UnitedHealth win lucrative Tricare pacts

NEW YORK - The Pentagon said Monday it has awarded military health care contracts worth tens of billions of dollars to managed care providers Aetna Inc. and UnitedHealth Group Inc., deciding not to renew deals with current contractors Humana and Health Net after a more than year-long bidding process.

Tricare is the Defense Department's health care program for military members, their families and survivors.

Hartford, Conn.-based Aetna received the support contract for the northern U.S., and will provide health care and administrative services for about 2.8 million members of the military based in the 21 states in the region.

Aetna's contract, which could be worth up to $16.68 billion, includes a 10-month transition period and one option period worth $2.84 billion, plus five one-year options and a transition-out period.

Woodland Hills, Calif.-based Health Net Inc. said it was disappointed to have lost its northern Tricare contract.

"We anticipate that a debriefing will be conducted within the next couple weeks. We will consider the information provided at the debriefing, and within two weeks following, we will determine whether we will accept or challenge the award decision," said Steven Tough, president of Health Net Federal Services, in a statement.

Humana Inc. is currently under contract to handle Tricare's southern members through March 31, 2010. After that, Minnetonka, Minn.-based UnitedHealth will take over in a contract that could be worth up to $21.83 billion. The deal includes a 10-month transition period, five one-year options and a transition-out period.

"Humana Military is disappointed with the decision by the Department of Defense and looks forward to obtaining further clarity via a debriefing on the bidding process," said Dave Baker, president and CEO of Humana Military, in a statement. "Our company will evaluate its strategic options with respect to the government's decision, including protesting the award, and will act expeditiously to best position Humana for continued success."

Louisville, Ky.-based Humana said it can't yet forecast what impact, if any, the loss of the Tricare contract may have upon its earnings for the year ending Dec. 31, 2009.

The northern region includes Connecticut, Delaware, Illinois, Indiana, the Rock Island Arsenal area of Iowa, Kentucky except the Fort Campbell area, Maine, Maryland, Massachusetts, Michigan, the area around St. Louis, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, Wisconsin, and the District of Columbia.

The southern region includes Alabama, Arkansas, Florida, Georgia, the Fort Campbell area of Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and most of Texas.

Aetna shares closed earlier up 77 cents, or 3 percent, at $26.33, while UnitedHealth shares finished up 34 cents at $25.01. Humana shares ended up 23 cents at $30.59 before the news was announced, and Health Net shares closed down 44 cents, or 3 percent, at $14.13.

Atlanta-based independent insurer TriServ, which provides services in the South, said that after a Wednesday debriefing it will review all available information and likely file a formal bid protest with the government in an effort to reverse the Defense Department's decision.

"It is difficult to understand the logic of the process that brought the Department of Defense to this conclusion," Charlie Abell, TriServ's CEO said. "The robustness of our provider network and our competitive pricing proposal, combined with the excellent past performance of our owner companies makes our loss very hard to accept."

The Pentagon awarded its western region contract to TriWest Healthcare Alliance Corp. of Phoenix. The deal, if all options are exercised, could be worth $16,96 billion.

The western region includes the states of Alaska, Arizona, California, Colorado, Hawaii, Idaho, Iowa (except the Rock Island Arsenal area), Kansas, Minnesota, Missouri (except the St. Louis area), Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Texas (areas of Western Texas only), Utah, Washington and Wyoming.

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