GAO Denies Sierra Health Services Protest of Department of Defense TRICARE Contract Award.

Business Editors/Health/Medical Writers

LAS VEGAS--(BUSINESS WIRE)--Dec. 8, 2003

Sierra Health Services Inc. (NYSE:SIE) today confirmed that the United States General Accounting Office (GAO) has denied the company's protest of the August 2003 award by the United States Department

of Defense (DoD) for Managed Care Support Services contracts to serve TRICARE beneficiaries in the North Region. Sierra's subsidiary, Sierra Military Health Services (SMHS) of Baltimore, is seeking the contract to provide managed health care services to approximately 2.8 million eligible active duty and retired military personnel and their families. The contract, for a six-month Base Period with five, one-year Option Periods, was awarded to Health Net Federal Services of Rancho Cordova, Calif.

The ruling, issued by the GAO's Office of the General Counsel, held partly on procedural grounds and partly on the merits that Sierra was not entitled to relief. Although because of the procedural findings the ruling does not address some of Sierra's substantive claims on the merits, the GAO denied other clams that the DoD's procurement agency, TRICARE Management Activity, failed to observe federal procurement regulations and standards in evaluating offerors' proposals.

Sierra will evaluate the GAO's ruling and determine its best course of action, which may include a proceeding before the Court of Federal Claims involving a complete hearing on the company's complaint of serious and material errors in the evaluation process and findings. If the court agrees, it could require the DoD to reopen all or part of the procurement in order to address the violations or deficiencies in its evaluation process. This would present the possibility that the original North Region award could be rescinded and another bidder selected.

After the TRICARE Next Generation (T-Nex) contracts were announced in August, every unsuccessful bidder for each of the three Managed Care Support Services contracts filed a protest of the contract awards. Health Net, which was awarded the North Region, filed protests in the South and West Regions for which it also competed. The GAO consolidated the protests of Sierra and Aetna Inc., both of whom competed against Health Net for the North Region.

"The ruling is certainly a disappointment, and appears inconsistent with a number of material issues raised during the course of the GAO protest action," said Anthony M. Marlon, M.D., chairman and chief executive officer of Sierra. "Based on this fact, we will look seriously at all possible alternatives including redress in the federal courts."