Bloomberg News

TriWest Fires at UnitedHealth in $20.5 Billion Award Fight

March 27, 2012

TriWest Healthcare Alliance Corp. (1893Q:US) protested its loss of a $20.5 billion military contract to UnitedHealth Group Inc. (UNH:US), saying the nation’s largest health insurer has a record of poor performance and legal issues.

The U.S. Department of Defense made an “inexplicable decision” to award the contract to UnitedHealth, “a company with a long history of performance problems and legal issues, and with no history of providing health care to the military,” David McIntyre Jr., TriWest’s chief executive officer, said in a statement yesterday.

TriWest’s bid was lower than UnitedHealth’s offer and also included “several hundred million dollars” in discounts that the government failed to include in its review, McIntyre said during a conference call with reporters today. The company’s protest was filed yesterday with the Government Accountability Office, which arbitrates contract disputes.

The U.S. Defense Department’s health program, called Tricare, on March 16 awarded the contract to UnitedHealth after initially choosing TriWest in 2009. UnitedHealth, based in Minnetonka, Minnesota, had persuaded the Pentagon last year to reconsider.

AMA Lawsuit

UnitedHealth’s legal issues include an American Medical Association lawsuit against the company, McIntyre said. The lawsuit filed in 2000 alleged the insurer manipulated payments to out-of-network doctors. UnitedHealth announced in January 2009 it would pay $350 million to settle the suit, which sought damages for the physicians.

The Pentagon only consulted five references provided by UnitedHealth in its review of the company’s track record, McIntyre said. Tricare officials should have done more to examine the company’s prior performance, such as contacting insurance commissions in states where UnitedHealth operates and reviewing the insurer’s public financial documents, he said.

“It’s a little like buying a house without an inspection,” McIntyre said.

Bonnie Powell, a spokeswoman for the military health program, declined to comment today on McIntyre’s allegations.

UnitedHealth also tried to “cut a deal” with TriWest before the award to avoid competing for the work, McIntyre said. He said TriWest wasn’t interested in such an arrangement.

“That was not proper in my opinion,” he said.

‘Ungrounded Assertions’

Matt Stearns, a UnitedHealth spokesman, declined to comment on whether the insurer had approached TriWest prior to the award.

“It’s typical for an incumbent who has lost an award to claim the process is unfair,” Stearns said in a phone interview today. “But we are disappointed in TriWest’s ungrounded public assertions, which will only cause beneficiary and provider confusion.”

The company’s legal woes are “no more or less than any other insurer,” Ana Gupte, an analyst with Sanford C. Bernstein & Co. in New York, said in an e-mail yesterday.

UnitedHealth is a “very strong, high-quality health benefits provider,” said Gupte, who has an outperform rating on the stock.

UnitedHealth rose 33 cents, or less than 1 percent, to $55.43 in New York Stock Exchange trading. The shares have increased 9.4 percent this year, compared with a 12.3 percent gain by the Standard & Poor’s 500 Index.

The GAO has until July 5 to make a decision about the protest, Ralph O. White, the agency’s managing associate general counsel for procurement law, said in an e-mail.

‘Only Business’

Closely held TriWest, based in Phoenix, risks losing what founder McIntyre has called its “only business.” The company has helped manage the military’s health services for the past 16 years. The work has generated more than $20 billion in contracts for the company since fiscal 2000, according to data compiled by Bloomberg Government.

“It is likely if we weren’t doing this work anymore, we would shut down the corporation,” McIntyre said in today’s conference call.

UnitedHealth is scheduled to take over the contract in April 1, 2013, managing care for active-duty military, retirees and their families in 21 states, mostly in the West. It would become one of Tricare’s lead contractors for the first time.

The transition is on hold pending a GAO decision on the protest, said Tricare’s Powell.

The contract will generate $1.4 billion in revenue for UnitedHealth over five years, the company said on March 19. The actual value to the insurer is far lower than the total award after accounting for beneficiaries’ medical costs, UnitedHealth said.

Federal Settlement

“No single thing” resulted in the agency’s decision to give the contract to UnitedHealth, Austin Camacho, a Tricare spokesman, said in a March 21 e-mail. He declined to elaborate.

The military health program considered factors including price and past performance when weighing the proposals from both companies, Camacho said.

The agency also looked at a $10 million false claims settlement TriWest agreed to pay last year, he said.

That federal settlement came after four former employees accused the company of failing to give the government discounts negotiated with health providers.

The case involved about 3,000 of 50 million claims filed during a five- or six-year period, said Scott Celley, a TriWest spokesman.

To contact the reporter on this story: Kathleen Miller in Washington at Kmiller01@bloomberg.net; Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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