UnitedHealth Group Inc. (UNH) has raised an objection over the Tricare contract it had initially won but was later awarded to its competitor Humana Inc (HUM).
The protest has been filed by the UnitedHealth’s military division with the U.S. Government Accountability Office over a U.S. Department of Defense (DoD) decision to award the Tricare contract to Humana Military Healthcare Services Inc. on February 25, 2011.
Initially, UnitedHealth won the Tricare contract in July 2009. But after continuous protests by Humana, DoD reviewed their decision and awarded the $23.5 billion 5-year contract to Humana.
In 2003, the DoD had awarded its 5-year Tricare contract to Humana to administer health benefits to soldiers and their families in the 10-state South region, which had contributed about 6.5% of Humana’s earnings annually.
With the winning of the contract, Humana’s management upgraded its earnings guidance for 2011 to reflect the extinguishment of expenses of approximately $0.25 per share, which would have been otherwise incurred for the loss of contract in early 2012.
Besides, Humana will continue supporting DoD’s delivery of health care services to three million active duty and retired service members and their families in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and most of Texas.
According to UnitedHealth, Humana had revised its bid, benefiting from the two-year delay in awarding the contract. Also, the company has announced significant discounts that would pay doctors and hospitals below the rates paid in the Medicare system. The officials at UnitedHealth believe that this could force doctors to leave the military healthcare network, besides threatening the Tricare South region health care system.
Humana reported its fourth-quarter operating earnings of $1.65 per share on February 7, surpassing the Zacks Consensus Estimate of 80 cents. This also compared favorably with earnings of $1.48 in the year-ago quarter.
Even though the fourth quarter of 2010 results were favorable based on strong earnings from the Government segment, we remain concerned about the weakness in the Commercial segment, whose membership fell 8.6% year-over-year.
Further, Humana’s better-than-expected sales in 2010 increased its Medicare Advantage and Prescription Drug Plan membership growth estimates, which led to continued improvements in its operations.
Humana is also expected to gain from new opportunities in the growing area of health care, with the acquisition of Concentra, Inc. In addition, the deal will enhance Humana’s business, diversify its revenue stream and will provide opportunities for expansion.
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