Foundation Health Wins Key Military Pact
Dealing a moderate blow to a larger rival, Foundation Health Corp. on Thursday wrested away a plum $2.5-billion military health care contract from Health Systems International.
Foundation, a Rancho Cordova, Calif.-based managed-care company, had protested the government’s award in March of the five-year military pact to the Qual-Med unit of Health Systems. Joining Foundation in the protest was Aetna Government Health Plans, which had won the contract in 1994 but was another loser in Thursday’s decision.
The Pentagon said a conflict of interest created by Health Systems, a Woodland Hills-based managed-care firm, was not properly evaluated when the original contract bids were made. In evaluating the bids, the Civilian Health and Medical Program of the Uniformed Services (Champus) used a consultant, Lewin-VHI, which would have benefited from Health Systems getting the contract, the agency determined.
Under the Health Systems proposal, Lewin-VHI’s parent firm, Value Health, would have provide managed mental health care services.
The Pentagon’s decision had been expected by most observers after the General Accounting Office in July recommended that the contract go to Foundation after determining that a conflict of interest existed.
The contract, valued at about $500 million annually, covers 720,000 military dependents and retirees in California and Hawaii, many of whom live in the San Diego area. It is the largest Champus medical contract of its kind in the country.
Despite the large value of the contract, one industry official said the Champus award is not regarded as a big generator of profits for health insurers.
“To get it back is very, very rewarding,” said Jeff Elder, Foundation chief financial officer. The bids of the two companies “were very close,” he said. The award is expected to increase the company’s earnings in the fiscal year ending in June, 1997, by about $10 million to $15 million, or about 10 to 15 cents a share, he said.
Don Prial, a spokesman for Health Systems, said the company is “considering its options” about the Pentagon’s decision. He said the Health Systems bid would have saved the government “a minimum of $50 million.”
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Bloomberg Business News contributed to this report.
