Tricare contractor to pay $10 million settlement

(Story updated with comment from TriWest at 3:50 p.m. ET.)

TriWest Healthcare Alliance, a private managed-care firm that administers healthcare benefits for military families in 21 Western states, has agreed to pay $10 million to settle whistle-blower allegations that it withheld price discounts from the Defense Department.

Four former TriWest employees sued the company, alleging in a federal false claims lawsuit that between 2004 and 2010, the company negotiated formal letters of agreement that provided the firm with discounts from healthcare providers. Yet TriWest failed to pass on the benefit of those discounts to the Tricare Management Activity, which is the military health plan for active-duty and retired service members administered by the Defense Department.

TriWest was in the midst of a $2.1 billion contract with the Defense Department to administer Tricare benefits during the time of the alleged activity.

The Justice Department intervened in one aspect of the former employees' complaint in August, but opted not to join the whistle-blowers in alleging two other purported schemes involving allegations that TriWest manipulated claims-authorization and reimbursements as way to inflate “historical costs” for contracting purposes.

A written statement from TriWest President and CEO David McIntyre Jr. said the company had made a mistake, and has implemented annual third-party audits among other voluntary steps to address the problems.

McIntyre's statement said the company regularly negotiated lower rates for certain specialty services with providers, but then failed to apply the discounts because of “TriWest's highly automated system” for claims processing. The losses amounted to about $3.5 million over the six years.

TriWest spokesman Scott Celley said that the company did not legally admit liability in the settlement, though TriWest did acknowledge publicly that internal mistakes led to the price discounts not being passed on to the Defense Department.

The whistle-blowers will receive $1.7 million of the $10 million settlement, a news release from the Justice Department says.