(Updates with contract for West, updates stock quotes)
The U.S. Department of Defense awarded billion-dollar military
health care contracts to Aetna Inc. (AET), UnitedHealth Group Inc.
(UNH) and TriWest Healthcare Alliance, ending an alliance with
three of the health insurers' competitors.
Aetna was selected to take over the program in the North region,
replacing Health Net Inc. (HNT), while Humana Inc. (HUM) was
removed in the South by UnitedHealth after more than a year of
government review.
TriWest, with the support of Blue Shield of California, won a
$16 billion contract to provide coverage in the West, replacing the
Civilian Health and Medical Program of the Uniformed Services, or
CHAMPUS, created in 1956 to expand health-care coverage to military
retirees and the families of active-duty personnel.
Both Humana and Health Net hinted they may protest the decision,
although the companies were waiting for further information.
After the announcements, Health Net's shares slumped 19% to
$11.50 and then returned to their closing price of $14.13 in late
trading, while Humana fell 4% to $29.38. Meanwhile, Aetna's shares
gained 3% to $26.33 and UnitedHealth's shares rose 2.8% to
$25.70.
Some analysts have suggested the program means the most to
Health Net.
The Tricare program, which provides civilian health benefits for
military personnel, military retirees and their dependents, awarded
a base contract of $2.48 billion to Aetna and $3.73 billion to
UnitedHealth.
Aetna's total potential contract, including a 10-month base
period and five one-year option periods was estimated at $16.68
billion. For UnitedHealth, the figure was estimated at $21.83
billion.
Aetna was awarded the contract to assist the military health
system for those eligible in the North region, which includes 21
states and the District of Columbia, while UnitedHealth's contract
covers 11 states in the Southern region.
Aetna said it would begin managing the plan in the region as of
April 1, 2010.
"We're eager to begin serving the beneficiaries of the TRICARE
program and will immediately set our planned transition activities
into motion," said Susan M. Peters, president of Aetna Government
Health Plans.
Health Net said it was "disappointed" not to be selected for the
program, and said it would determine whether to accept or challenge
the award decision within two weeks of the debriefing.
For its part, Humana said due to the complexities of the bid
award and protest process, the company couldn't anticipate what
impact, if any, the loss of the TRICARE contract would have on its
earnings this year.
"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,"
said Dave Baker, president and chief executive of Humana's military
services subsidiary.
-By John Kell, Dow Jones Newswires; 212-416-2480;
john.kell@dowjones.com