The U.S. Department of Defense plans to award the North Region Managed Care Support contract to Health Net Federal Services L.L.C.

Pentagon officials have notified Health Net Federal, a unit of Health Net Inc., Woodland Hills, Calif. (NYSE:HNT), that they intend to give the contract to Health Net Federal, according to Health Net.

Health Net is now the managed care contractor for the Tricare North Region.

“Health Net is honored to continue to serve our active duty, National Guard and Reserve members, and military retirees and their families in the North Region,” Health Net President Jay Gellert says in a statement.

Aetna Inc., Hartford (NYSE:AET), another contender for the contract award, says it “is reviewing the basis for the decision and will seek to determine the best path forward.”

“We are extremely disappointed with this decision,” Susan Peters, president of the Aetna Government Health Plans unit, says in a statement.

Tricare is a program that manages health benefits for military personnel, dependents and retirees who get care away from military and Veterans Department facilities.

The contract for the North Region covers “the District of Columbia and the states of Connecticut, Delaware, Illinois, Indiana, Iowa (Rock Island Arsenal area only); Kentucky (except the Fort Campbell area); Maine, Maryland, Massachusetts, Michigan, Missouri (St. Louis area only); New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, and Wisconsin.”

The initial 10-month “base period” has a value of about $2.8 billion, and there are also 5 1-year “option periods.” If the government pays for all option periods, the total value of the contract could be about $17 billion, officials say.

The Defense Department originally decided to award the North Region contract to Aetna.

Health Net protested the award, the U.S. Government Accountability Office sustained the protest in November 2009.

During the procurement period, Aetna employed a former high-level government employee who had had access to non-public information about Health Net’s Tricare operations, according to Lynn Gibson, the acting GAO general counsel.

Aetna used the employee in preparing its Tricare proposal, and that created “an appearance of an impropriety,” Gibson wrote in a discussion of the GAO discussion.

Aetna offered to charge the government less than Health Net did, but the government’s original evaluation of the price failed to consider, in a reasonable way, whether Aetna was proposing to employ enough people, and whether Aetna’s plans to try to hire Health Net’s Tricare workers “with lower compensation rates” created an additional level of risk, Gibson wrote.

“During the procurement process, Aetna took a number of actions to ensure compliance with the Department of Defense requirements,” Peters says in the Aetna statement. “Aetna is guided by a core set of values, central among which is integrity. We believe we acted appropriately throughout the procurement process and that no non-public information was ever used in preparing the bid.”

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