Foundation Health Should Get Champus Contract, GAO Says
The General Accounting Office on Friday recommended that Foundation Health Corp. receive a five-year, $2.5-billion military health care contract--the nation’s largest such pact--which had originally been awarded to a unit of rival Health Systems International Inc.
Shares of Rancho Cordova, Calif.-based Foundation Health jumped 7% on the news.
The GAO review and recommendation were the result of protests lodged by Foundation Health and Aetna Government Health Plans over the Defense Department’s award of the contract last March to QualMed, a subsidiary of Woodland Hills-based Health Systems. The companies alleged that their competing proposals were not evaluated properly.
If the Pentagon follows the GAO’s recommendation, Foundation Health would manage the Civilian Health and Medical Program of the Uniformed Services, or Champus, which covers 720,000 military dependents and retirees in California and Hawaii. Most of the beneficiaries live in the San Diego area. The GAO is the investigative arm of Congress.
In sustaining the protests, the GAO found “significant organizational conflict of interest” in the initial procurement. In evaluating bids, Champus used a consulting firm, Lewin-VHI, that would have benefited from Health Systems’ getting the deal, according to a 23-page report filed by the U.S. comptroller general.
But the inquiry found “no evidence the parties acted in bad faith,” the report says.
The GAO review found the Foundation Health bid to be the “best buy” among the competing proposals.
The Pentagon has up to 60 days to consider the recommendation. “The Defense Department follows the GAO’s recommendation in most of these cases,” a Foundation Health spokesman said.
The California-Hawaii Champus contract has been in dispute since 1994, when Aetna took over the procurement from Foundation Health, which had held the contract since 1988.
The award to Aetna was protested by Foundation Health and Health Systems, resulting in Health Systems’ getting the nod in March.
“We are disappointed by the GAO recommendation and we remain convinced that our proposal would best serve the health care needs of more than 700,000 dependents of active-duty personnel and retirees,” a Health Systems spokesman said Friday.
In April, Foundation Health won a $1.8-billion contract to provide similar health services to 613,000 military dependents and retirees in Texas, Louisiana, Oklahoma and Arkansas. Blue Cross and Blue Shield of Texas Inc. challenged that award, but a government review found in favor of Foundation.
Foundation also runs the Champus plan for military dependents and retirees in Oregon and Washington.
Foundation shares jumped $2.125 to $33.75 on the New York Stock Exchange; stock in Health Systems was unchanged at $28.625.
