March 17 (Bloomberg) -- UnitedHealth Group Inc. wrested a military health contract valued at as much as $20.5 billion from TriWest Healthcare Alliance Corp., a closely held company that has had the work since 2003.
UnitedHealth, the nation’s biggest health insurer by revenue, in April persuaded the Pentagon to reconsider a 2009 decision to award the five-year contract for the western region to TriWest. The U.S. Defense Department announced the decision in favor of UnitedHealth after markets closed yesterday, sending the company’s shares higher in after-market trading.
The win gives UnitedHealth, based in Minnetonka, Minnesota, access to the military health-care market, which the company has aggressively pursued. In June, it lost a separate challenge for a $23.5 billion contract for the South region, covered by Louisville, Kentucky-based Humana Inc.
“It’s a huge strategic win for them because they’re not in the military space,” Ana Gupte, an analyst with Sanford C. Bernstein & Co. in New York, said before the announcement. “It just extends the reach of United into every part of health benefits in the United States.”
TriWest, Humana and Woodland Hills, California-based HealthNet Inc. are the main managed-care providers for Tricare, the military’s health-care program.
UnitedHealth shares rose as much as 3.8 percent in after-market trading yesterday to $57.69. Before yesterday’s announcement, the shares had risen 9.7 percent this year.
Matt Stearns, a UnitedHealth spokesman, declined to comment. The company had $102 billion in revenue last year.
The award comes after TriWest agreed to pay a $10 million fine in September to settle a federal whistleblower lawsuit. The suit, filed in U.S. District Court in San Francisco by four former employees, accused the company of submitting claims to the government without including discounts negotiated with service providers.
TriWest currently is serving the western region under the 2003 contract. The loss of the new contract, which begins April 1, 2013, essentially would erase much of TriWest’s revenue stream.
“This is our primary line of business,” Scott Celley, a TriWest spokesman, said yesterday in a telephone interview before the announcement. “We have a few other things that support military families, but this is essentially all that we do.”
The company hasn’t decided whether it will appeal the decision, Celley said.
TriWest won its first Tricare contract in 1996 for the western region. The Phoenix-based company has about 1,800 employees and serves 2.9 million active-duty military, retirees and their families in 21 states.
“We are extremely disappointed that the Department of Defense chose to reverse their decision,” David McIntyre Jr., TriWest’s chief executive officer, said in a statement. “For the past 16 years, we have worked tirelessly and with the highest levels of respect to meet the health-care needs of West Region military families who have very much become our family.”
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