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Defense Department Shuts Sierra Out Of $27 Billion Tricare Program

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NU Online News Service, Aug. 22, 2003, 5:13 p.m. EDT – The U.S. Department of Defense has picked three companies to manage Tricare, its program for providing health care for 8.7 million military personnel, veterans and dependents away from military bases and veterans health care facilities.

The companies winning the five-year contracts? which have a potential combined value of about $27 billion, are TriWest Healthcare Alliance Corp., Phoenix, and units of Health Net Inc., Woodland Hills, Calif., and Humana Inc., Louisville, Ky.

All three companies already participate in the Tricare program. TriWest has been handling Western states, Humana has been handling Southern states and Health Net has been handling Midwestern states.

The Defense Department shut out a fourth Tricare program participant, Sierra Health Services Inc., Las Vegas, which has been running the Tricare program in the Northeast. The department has awarded the rights to the Northeastern states to Health Net but shifted five Western states that Health Net has been handling into TriWest’s domain.

Health Net expects its Tricare revenue to remain roughly constant. But, if the contract decisions stand, Sierra could lose about one-third of its annual revenue and the source of about 10% of its operating profits, Sierra says.

The Defense Department hopes to begin phasing in the new contract structure in September and complete the transition by November 2004.

Sierra says it might try to win back the contract for the Northeastern states.

“The company expects to meet with the DOD within the next several days,” Sierra says in a statement about the loss of the award. “Following this meeting, Sierra will use the information obtained to make a decision as to its best option regarding the loss of the award, including a possible protest of the award. A protest could potentially focus on alleged factual or procedural errors applied by the DOD in its award determination.”

The Defense Department did not immediately respond to a request for a comment about its Tricare contract decisions.