UnitedHealth’s Pentagon Failure Seen Risking Future U.S. Awards

Air Force veteran Michelle Linn worries that her two teenage boys will lose access to an autism treatment center because UnitedHealth Group Inc. (UNH) has been slow to pay the provider.

The nation’s biggest insurer took over a $20.5 billion contract to coordinate military health services on April 1. Since then, providers and beneficiaries have cited long delays in medical care and payments. It has been “one fiasco after another,” said Linn, who lives in Colorado Springs, Colorado.

UnitedHealth’s poor performance prompted a rebuke from the Defense Department, which accused the company of failing to comply with its contract and risking the health of active-duty military, retirees and their families. The failures blemish the insurer’s reputation and may hurt the company’s ability to win more government contracts, said Sheryl Skolnick, a Stamford, Connecticut-based analyst at CRT Capital Group LLC.

“The egg on their face is pretty thick and it’s bright yellow,” said Skolnick, who has a “buy” rating on UnitedHealth. “The expectation was they would execute this flawlessly. It was a real stunner to see the headline that the Pentagon wasn’t happy.”

It would be difficult for defense officials to award another contract to Minnetonka, Minnesota-based UnitedHealth unless the company quickly fixes the snags, Skolnick said in a phone interview.

Photographer: Michael Nagle/Bloomberg

UnitedHealth Group Inc.’s delays affected members of the Tricare Prime plan, which has about 1.6 million beneficiaries in the region served by the company. Close

UnitedHealth Group Inc.’s delays affected members of the Tricare Prime plan, which has... Read More

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Photographer: Michael Nagle/Bloomberg

UnitedHealth Group Inc.’s delays affected members of the Tricare Prime plan, which has about 1.6 million beneficiaries in the region served by the company.

Crisis Call

UnitedHealth cracked the U.S. military market with the contract, awarded in March 2012. The Pentagon spent almost $61 billion on health care during the year that ended Sept. 30, 2012, said Wayne Plucker, a global industry manager at Frost & Sullivan, a consulting and market research firm based in Mountain View, California.

The Colorado Springs area, home to Fort Carson, Peterson Air Force Base and the U.S. Air Force Academy, is part of the 21-state western coverage area under the contract for the military’s Tricare health program. Other states covered in the contract include California, Hawaii, Minnesota and Arizona.

Jonathan Woodson, assistant secretary of defense for health affairs, will hold a telephone conference call today with Fort Carson health facility officials to discuss “unresolved issues and challenges caused by the transition” to UnitedHealth, Cynthia O. Smith, a Defense Department spokeswoman, said in a phone interview.

Training Delays

Bruce Jasurda, a UnitedHealth spokesman, said the company has conducted “extensive” training of its staff to ensure consistent processing. Patients have complained of delays as the contractor has struggled with a backlog in specialty-care referrals and authorizations for medical services.

“The queue of pending referrals and authorizations have been largely eliminated,” Jasurda said in an e-mail.

UnitedHealth said this week it has changed the leadership of its military and veterans unit, which oversees the contract. Lori McDougal, the former chief executive officer of that unit, has accepted another position with the company, according to Matt Stearns, a spokesman for the insurer.

Even so, physical therapists working with UnitedHealth through the military contract have seen referrals decline as much as 80 percent since the insurer assumed the contract, said Lorne MacDonald, who owns Falcon Physical Therapy in Colorado Springs.

His four clinics serving injured troops, military retirees and their dependents got 19 referrals last week, down from about 93 referrals the week before UnitedHealth took over the work, he said.

“I met with UnitedHealth and they told me they have a clean desk, and the backlog’s been resolved. I said: ‘Where did all the patients go, then?’” MacDonald said.

Autism Center

The Alpine Autism Center has never received a payment from UnitedHealth for its military work, said Tana Rice, the center’s operations manager. There have also been delays in admitting new military children to the program, she said. The center may have to cut staff or restrict the number of military families that it serves because of the issues with UnitedHealth, she said.

“There have been major problems, but we are working with them on a resolution,” said Rice, speaking of UnitedHealth.

The insurer still owes the center $97,000, and “we have had to rebill everything because they didn’t have their stuff set up properly,” she said in a phone interview.

UnitedHealth has contacted the Alpine Autism Center, addressing “their specific payment concerns,” said Jasurda, the insurer’s spokesman.

Husband Deployed

Linn, who is on the autism center’s volunteer board of directors, said she is concerned that the provider will cut treatment options for military families while her husband, an Air Force colonel, is deployed overseas. He is set to go to Afghanistan in September.

“If my kids can’t go to Alpine, I’ll have to take a leave of absence from work,” said Linn, a 49-year-old facility engineer at Peterson Air Force Base. “This is an established service that has been provided to military families for four or five years. Why all of a sudden when UnitedHealth comes in is it being treated differently?”

UnitedHealth’s delays affected members of the Tricare Prime plan, which has about 1.6 million beneficiaries in the region served by the company.

The Pentagon stepped in to grant a temporary waiver so beneficiaries could get specialty care without UnitedHealth’s authorization and not incur penalties. That waiver has been extended through June 18.

Refund Option

The Defense Department hasn’t yet decided whether it will recoup costs from UnitedHealth, said Austin Camacho, a spokesman for Tricare.

The military probably won’t terminate the contract, said Larry Allen, president of Allen Federal Business Partners, a consulting company based in McLean, Virginia.

“It’s much more likely and typical for them to ask a contractor for remedial action, to pay them back money and establish a workout plan,” Allen said in a phone interview.

The military chose UnitedHealth over TriWest Healthcare Alliance Corp., a Phoenix-based company that coordinated care for military families for 17 years, for its better “technical approach,” according to a federal government review published last year.

TriWest has cut 1,500 employees since losing the contract, said Scott Celley, a spokesman for the company. David McIntyre Jr., TriWest’s founder, has said the contract was the company’s “only business.”

In March 2012, TriWest protested the Pentagon’s decision to give the contract to UnitedHealth with the Government Accountability Office, Congress’s investigative arm which also arbitrates contract disputes. It said the Defense Department hadn’t properly considered UnitedHealth’s past performance problems.

“We have nothing further to say,” Celley said in a June 10 phone interview.

Facebook Campaign

Some of UnitedHealth’s issues may be expected, given the military’s switch to a new vendor, said Ana Gupte, an analyst with Dowling & Partners in Farmington, Connecticut.

Still, investors should “keep an eye on whether these types of things start happening in other areas of the business,” she said.

“It’s obviously not a good thing,” she said.

More than 130 people have criticized UnitedHealth on Tricare’s Facebook page. “My cancer isn’t waiting for authorization!” one beneficiary wrote on April 29.

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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