A U.S. government agency upheld the Pentagon's $20.5 billion contract award to UnitedHealth Group Inc., dashing incumbent TriWest Healthcare Alliance Corp.'s hopes of persuading the Defense Department to reconsider.
TriWest executives protested the Pentagon's March decision with the Government Accountability Office, which arbitrates contract disputes, saying Defense Department officials told them during a post-award briefing that their company had made a lower bid. The GAO ruled in UnitedHealth's favor Monday.
The GAO found the Defense Department's "evaluation was reasonable, and denied TriWest's protest on all counts," said Ralph O. White, GAO managing associate general counsel for procurement law.
UnitedHealth shares fell 3.8 percent to $56.26 in New York Stock Exchange Composite trading, the biggest decline since October. The shares were down 4 percent before the GAO announcement.
The stock is down because of last week's Supreme Court decision that found U.S. health-care reform legislation is constitutional, and "may rebound a bit," Ana Gupte, an analyst with Sanford C. Bernstein & Co. in New York, said. "This is very good for UnitedHealth," she said. "It now places them firmly in every government program."
Closely held TriWest has helped manage the military's health services for 16 years. The work generated more than $20 billion in contracts for the Phoenix-based company since fiscal 2000, according to data compiled by Bloomberg.
"There are options that remain," Scott Celley, a TriWest spokesman, said. He declined to comment on the company's next moves, saying TriWest officials have yet to see the details of the decision. Companies may file suit in the U.S. Court of Federal Claims over contract disputes.
Without the contract, "it is likely" the company would shut down, David McIntyre Jr., TriWest's CEO, said previously.
The military's health program, called Tricare, on March 16 gave UnitedHealth the contract after initially choosing TriWest in 2009. Minnetonka-based UnitedHealth had persuaded the Pentagon to reconsider last year.
UnitedHealth is scheduled to take over the contract on 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.