UNH cries foul on Pentagon contract

  • Article by: JIM SPENCER and JEREMY HERB , Star Tribune staff writers
  • Updated: March 7, 2011 - 9:41 PM

The Defense Department reversed course last week and gave the $21.8 billion deal for veterans' care to Humana.

WASHINGTON - In a move designed to rescue billions of dollars in potential administrative and management fees, UnitedHealth Group struck back Monday at a Department of Defense decision to take away a $21.8 billion contract.

The Minnetonka-based company filed a protest with the General Accounting Office (GAO) alleging violations of federal procurement law. The letter triggered a temporary hold on a regional contract to provide health care to military veterans and their families through a program called Tricare.

The letter was the latest twist in a bitter, high-stakes war that has pitted UnitedHealth, the nation's largest health insurance company by sales, against another health insurance giant, Humana.  

Humana has run Tricare in the south region of the United States since 1996. It lost that lucrative contract to UnitedHealth in 2009, but won it back in February after convincing the GAO that the selection process was flawed.

The GAO sided with Humana against UnitedHealth in a legal decision in October 2009, saying that the contract award to UnitedHealth should be reconsidered because Tricare officials failed to consider discounts available to the government from Humana's established network of health care providers. It took roughly 17 months for the Defense Department to reverse itself.

Now, UnitedHealth alleges that Humana changed its bid since 2009 to reflect payments to doctors that are so low they will drive physicians out of the Tricare network and endanger veterans' care.

The GAO will decide on the merit of the UnitedHealth complaint by June, officials said.

Lots of money hangs in the balance. In a 2009 news release, UnitedHealth Group said the contract would pay $20.3 billion in benefits to veterans and their families while paying $1.5 billion in management and support service fees to UnitedHealth. More money was available by exceeding "contract standards," the company stated.

UnitedHealth claims that Humana benefited from being able to keep running the Tricare program as the dispute plays out.

In 2007, UnitedHealth formed a new subsidiary, United Military Veterans Services, Inc., specifically to get Tricare contracts, said Don Nathan, UnitedHealth's vice president for communications.

"We think that there were serious flaws that led to the reversal," Nathan said.

A bipartisan group from Minnesota's congressional delegation sent a letter to the Defense Department Monday at UnitedHealth's request. While they stopped short of calling the process wrong, the letter asked defense officials not to override the temporary GAO stop order while the GAO considers UnitedHealth's protest.

"When you look at it on costs, it should have gone to UnitedHealth," said Sen. Amy Klobuchar, D-Minn., who signed the letter along with Sen. Al Franken, D-Minn., Rep. John Kline, R-Minn., and Rep. Erik Paulsen, R-Minn.

Klobuchar said UnitedHealth officials asked for a letter of support in a conversation last week. Klobuchar said she thought it was "completely appropriate" to help UnitedHealth because the company employs so many Minnesotans.

Officials at the Defense Department declined to comment Monday. GAO lawyer Ralph White said Defense Department officials rarely override GAO temporary stop orders.

Jim Spencer • 202-408-2752 Jeremy Herb • 202-408-2723

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