UHG Sues Over Loss of $23.5B Gov’t Contract

The lawsuit comes about a week after the U.S. Government Accountability Office rejected the company's protest of a health-care contract that was awarded to it in 2009 and then rescinded in February.

About a week after Minnetonka-based UnitedHealth Group, Inc. (UHG), lost in an effort to regain a five-year $23.5 billion U.S. Department of Defense contract, it filed a lawsuit over the handling of that contract.

The lawsuit, filed with the U.S. Court of Federal Claims, follows a recent U.S. Government Accountability Office (GAO) decision to reject UHG's protest of a contract that was awarded to it in 2009 and then rescinded in February.

The contract is for Tricare Management Activity-the military's health-care program. Under the terms of the contract, UHG would have provided health-care benefits to 3 million soldiers and their family members in 11 southern states.

“The stakes for military families are simply too high, and the deficiencies in the contracting process too significant, for the Department of Defense to proceed with implementing this contract as it stands,” Lori McDougal, CEO of UnitedHealthcare's military health division, said in a statement. “The Pentagon disregarded its own stated goals for this contract, and military families' access to quality health care in the South will be put at risk as a result.”

In July 2009, Tricare awarded the contract in question to UHG. But Louisville, Kentucky-based Humana Military Healthcare Services protested the government's decision, claiming that the process used to select a contractor was different than what was outlined in its request for proposals.

The GAO explored Humana's assertion-and it agreed with Humana, which prompted Tricare to review contract proposals and “resulted in a different 'best value' selection,” according to Tricare. In late February, Tricare announced that it had terminated the contract with UHG “for convenience of the government” and planned to instead award it to Humana.

UHG formally protested the decision in March, saying that Tricare misevaluated the proposals and made an unreasonable selection, and four members of Minnesota's Congressional delegation sent a letter in support of that protest.

Health-care delivery under the contract in question is set to begin April 1, 2012. UHG said in March that the contract would have added “hundreds” of jobs within Minnesota.

UHG is fighting Tricare on a military health-care contract for more than 2.7 million soldiers and their families in 21 western states as well. That contract, which is worth $17 million over six years, was awarded to Phoenix-based TriWest Healthcare Alliance Corporation in July 2009. But UHG formally protested, and Tricare said in April that it would “re-evaluate the award.” Tricare has since re-opened the bidding process and will look at the revised proposals and make a final decision later this year.

However, UHG has some concerns about the process under which the contract will be awarded.

“The Pentagon has indicated that it will go down the same risky path it chose in the South region by inviting offerors to guarantee cuts in payments to doctors and hospitals in the Tricare West network,” the company said. “The department will re-open the contract solicitation, but the negative long-term implications for Tricare members in the West are clear if the same network discount guarantees that threaten health-care access in the South are put in place in the West.”

UnitedHealth Group is Minnesota's largest public company based on its revenue, which totaled $94.2 billion in 2010. With 11,500 Minnesota employees, it's also among Minnesota's 15-largest employers.