TriWest Won’t Challenge U.S. Contract Loss to UnitedHealth

TriWest Healthcare Alliance Corp., a closely held company created to provide medical services to the military, said today it won’t challenge the loss of a $20.5 billion contract to UnitedHealth Group Inc. (UNH)

The Government Accountability Office, which arbitrates contract disputes, last week rejected the company’s protest of the Defense Department’s decision to give the work to the nation’s largest health insurer.

TriWest, based in Phoenix, had the option of filing a lawsuit in U.S. Court of Federal Claims. It has 1,700 employees.

“It is with mixed emotions that we make this decision,” the company said in a statement. “However, continuing to challenge the government’s decision will not bring an end to the uncertainty that has plagued this program for the last three years and will only drive up the costs for all involved.”

David McIntyre Jr., TriWest’s chief executive officer, has said “it is likely” the Phoenix-based company would shut down without the contract.

TriWest’s decision may have a ripple effect. One of its subcontractors, Madison, Wisconsin-based WPS Health Insurance, notified some workers in its Wausau, Wisconsin, office this week that TriWest’s contract loss may result in some job losses. WPS handles claims processing on the military contract.

“If we don’t have the contract, we won’t have the work to sustain that workforce,” Brian Brugger, a senior vice president for the company, said in a telephone interview today.

TriWest Contracts

WPS has 3,500 employees. Brugger wouldn’t say how many jobs were at stake.

TriWest owes its existence to Tricare, the Pentagon’s health program. Founded in 1996 by McIntyre, a former aide to Republican Senator John McCain, it has helped manage military medical services for 16 years. TriWest is owned by a holding company made up of a group of nonprofit Blue Cross Blue Shield plans and university hospital systems.

The military work has generated more than $20 billion in contracts for TriWest since fiscal 2000, according to data compiled by Bloomberg.

The Defense Department in March awarded the new five-year contract to Minnetonka, Minnesota-based UnitedHealth. The company will take over coordinating medical services for active duty military, retirees and their families in 21 states, mostly in the West, in April 2013.

UnitedHealth Settlement

TriWest accused the Pentagon of failing to consider the costs of moving to a new provider. It also has pointed to UnitedHealth’s legal woes, including a $350 million settlement that the insurer paid after the American Medical Association claimed it had manipulated payments to doctors. The agreement was announced in January 2009.

TriWest lobbied members of Congress to send letters to Defense Secretary Leon Panetta asking for an explanation of the contract decision. It also has blanketed the Washington area with ads attacking UnitedHealth.

The GAO’s July 2 decision found that the Pentagon’s evaluation of the competing bids “was reasonable,” Ralph O. White, the GAO’s managing associate general counsel for procurement law, said in an e-mailed statement that day.

The decision, which hasn’t been released to the public, denied TriWest’s protest “on all counts,” White said.

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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