The Government Accountability Office (GAO) confirmed the U.S.
Department of Defense's (DoD) TRICARE Managed Care Support contract
UnitedHealth Group Inc.
). This TRICARE contract for the West region would be effective
from April 2013. Under this administrative services contract, the
company will support health care delivery to approximately 2.9
million eligible beneficiaries who are active duty service members,
retirees and family members based in 21 states of TRICARE's West
region. The contract consists of five one-year option periods and
is valued at $20.5 billion.
TRICARE is a health insurance service program meant for working
as well as retired military service members and their families.
The TRICARE west region was served by TriWest Healthcare
Alliance Corp. since 1996, and was currently serving the area as
per the 2003 contract. UnitedHealth raised its doubts over the
contract in 2009 and managed to persuade the Department to
reconsider its decision. The Department discovered the errors made
in the west region contract award and finally reversed its decision
in UnitedHealth's favor.
The contract gives UnitedHealth, the largest U.S. health insurer
(on the basis of revenue), access to the military health care
market, an area in which the company has sought to establish its
presence for quite some time. Last year, the company also sued the
DoD for the TRICARE southern region contract valued at $23.5
billion, but lost the contract to
The contract will accrue considerably to UnitedHealth's top
line, which posted consolidated revenues of $102 billion in 2011.
However, the loss of the TRICARE contract will erase much of the
total revenue from TriWest as the military business forms the main
component of the company's business.
It is also expanding geographically to offset the restrictions
imposed by the Health Care Reform back home. The company is also
developing its health service business, branded as Optum, and has
made a number of acquisitions recently in this regard.
UnitedHealth is uniquely poised to gain from the changing
landscape in the health insurance industry. The company has
made a number of acquisitions, both big and small, to reshape its
business in the face of new Health Care Reform regulations.
UnitedHealth currently retains a Zacks #3 Rank, which translates
into a short-term 'Hold' rating. We are also maintaining our
long-term "Neutral" recommendation on its shares.
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