oversight

Defense Health Care: Dental Contractor Overcame Obstacles, but More Proactive Oversight Needed

Published by the Government Accountability Office on 1997-02-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Requesters




February 1997
                 DEFENSE HEALTH
                 CARE
                 Dental Contractor
                 Overcome Obstacles,
                 but More Proactive
                 Oversight Needed




GAO/HEHS-97-58
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-276142

      February 28, 1997

      The Honorable Steve Buyer
      Chairman
      The Honorable Gene Taylor
      Ranking Minority Member
      Subcommittee on Military Personnel
      Committee on National Security
      House of Representatives

      The Honorable Joel Hefley
      The Honorable Walter B. Jones, Jr.
      The Honorable Charles W. Norwood, Jr.
      House of Representatives

      In 1985, the Congress authorized the Department of Defense (DOD) to
      establish a dental benefits program for eligible family members of active
      duty members who could no longer be accommodated on a
      space-available basis at military dental clinics. Today, the TRICARE Active
      Duty Family Member Dental Plan (FMDP) is a large dental insurance
      program covering over 1.8 million beneficiaries and allowing up to $1,000
      annually per person for a wide range of dental services. From
      February 1996 through July 2001, the FMDP will be administered nationwide
      for DOD under a $1.9 billion contract with United Concordia Companies,
      Inc., and its parent company, Highmark, Inc., both of Camp Hill,
      Pennsylvania.1

      Concordia experienced a difficult and protracted takeover from the
      incumbent FMDP contractor, DDP*Delta.2 Until February 1996, DDP*Delta
      had been the only nationwide FMDP insurer, and dentists and beneficiaries
      alike had grown accustomed to DDP*Delta’s management of the program.
      DDP*Delta’s unsuccessful legal action protesting DOD’s contract award to
      Concordia caused a 6-month delay in Concordia’s takeover and generated
      negative publicity that Concordia has had to surmount. In addition,
      congressional concerns were raised early on about whether Concordia
      was administering the FMDP in such a way as to ensure the satisfactory


      1
       Concordia is the legal entity acting as the prime FMDP contractor. Concordia’s parent company as of
      December 1996 is Highmark, Inc., after its original parent company, Pennsylvania Blue Shield, merged
      with Blue Cross of Western Pennsylvania. Highmark has an agreement to participate as an
      interdivisional affiliate providing various services in support of the contract, such as information
      systems, internal audit, training, and business experience.
      2
      From August 1987 through January 1996, the FMDP was administered and underwritten by
      DDP*Delta, representing Delta Dental Plans in 50 states.



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                   delivery of dental care nationwide. Of particular concern were the
                   amounts Concordia paid to dentists, the number of participating dentists,
                   and the timeliness of claims processing and restrictiveness of coverage.

                   In response to these concerns, House Committee Report 104-563
                   (accompanying H.R. 3230, Fiscal Year 1997 Defense Authorization Act), in
                   addition to a joint request from Representatives Joel Hefley; Charles
                   Norwood, Jr.; and Walter Jones, Jr., directed us to evaluate several issues
                   regarding the program. Specifically, we were required to determine
                   whether (1) Concordia’s fee allowances for participating and
                   nonparticipating dentists are appropriate, (2) Concordia has established
                   an adequate network of participating dentists, (3) Concordia’s claims
                   processing and marketing efforts meet contract requirements, and (4) DOD
                   is meeting its oversight responsibilities to ensure that Concordia complies
                   with contract requirements.

                   To do our work, we obtained actuarial assistance from the Hay Group and
                   reviewed regulations, contract provisions, and bid protest records bearing
                   on Concordia’s fee schedules and network. Concordia has used two sets of
                   fee allowances for participating and nonparticipating dentists since
                   starting work as the FMDP plan insurer: (1) initial fees from February
                   through July 1996 and (2) revised fees since August 1996. We analyzed
                   Concordia’s fees and charge data for 26 frequently incurred services
                   between February and June 1996. To evaluate the adequacy of Concordia’s
                   network, we compared the frequency of services needed by beneficiaries
                   with the number of participating dentists nationwide and at 21 military
                   bases. To evaluate Concordia’s claims processing timeliness, we analyzed
                   its computerized claims records for February through September 1996. We
                   also reviewed Concordia’s policy to limit payments for certain treatments
                   to less costly alternatives to determine whether it was consistent with
                   regulations and the contract, and we compared Concordia’s marketing
                   activities with contract requirements. Finally, to evaluate DOD’s oversight
                   of Concordia, we assessed the current level of effort at DOD headquarters
                   in Washington, D.C., and at the TRICARE Support Office (TSO) in Aurora,
                   Colorado. For additional discussion of our scope and methodology, see
                   appendix I.


                   Concordia has overcome numerous start-up problems and is now
Results in Brief   performing the task areas we reviewed within the contract’s requirements.
                   DOD, however, has not yet taken a proactive role in overseeing the contract




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and thus far has not acted to assure itself and the Congress that the
contractor is performing as required.

Regarding fee appropriateness, neither applicable regulations nor the
contract establish how Concordia’s fees should be set nor whether or
when they should be revised. Thus, while contractually required to pay
dentists at certain fee levels based on “prevailing charges” (or less when
billed charges are lower), in effect, Concordia is left to determine whether
its fees are appropriate and whether and how such contractual
requirements are met.

Our analysis of Concordia’s fee-setting methods showed that its initial
February 1996 fees were based on less up-to-date charge data than were its
revised August 1996 fees. Lacking actual charge data experience,
Concordia based its initial fees on 1993 and 1994 industry data, the most
current data available when it submitted its January 1995 contract bid.
After the 6-month delay in the contract’s start, Concordia used these same
fees to reimburse dentists during the contract’s first 6 months. In
August 1996, Concordia revised many of the fees on the basis of its actual
claims experience during the first 6 months. Although not required to do
so, Concordia could have elected to update its initial fee schedules by
using a trend factor reflecting the estimated 1994 and 1995 dental charge
increase, thus making them about as up to date as its August 1996 fees.3
Had it done so, Concordia would have paid an estimated $2.5 million more
in fees nationwide to dentists during the contract’s first 6 months.
Concordia used up-to-date dental charge trends in projecting the
program’s premium revenue rate increases over the contract’s 5-year
period.

In the geographic areas we reviewed, Concordia has ample numbers of
network dentists within 35 miles of beneficiaries’ residences—one of two
access standards. Moreover, we estimated that, if optimally located,
Concordia would need only about 7,300 dentists to meet the 1.8 million
beneficiaries’ likely demand for dental services. As of November 1996,
Concordia’s network included almost 45,000 dentists. At two remote
military base areas, however, there are not enough dentists available for
Concordia to develop an adequate network. In a third area, Camp Lejeune
Marine Corps Base in Jacksonville, North Carolina, nearly all dentists have
declined to participate in Concordia’s network, for which DOD is now
considering several remedial interventions. Data were not available in time
with which to evaluate compliance with DOD’s other access standard—that

3
 Recent dental charge increases have been fairly consistent at 5 to 6 percent per year.



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             beneficiaries obtain an appointment with a participating general dentist
             within 21 days. Concordia and DOD, however, plan to survey beneficiaries
             about the timeliness of their appointments.

             Although tardy during the early months of the contract, Concordia data
             indicate that it is now processing dentists’ claims for payment within
             required time limits. Also, Concordia had been processing
             nonparticipating dentists’ claims somewhat slower than participating
             dentists’ claims, but now is meeting the required time limit for both
             groups. And Concordia’s data on processing predetermination claims4
             show that it is now meeting the established time limit. Concordia’s
             “optional or alternative treatment” policy allows payment for a less costly
             treatment instead of a more costly treatment (removable denture instead
             of a fixed bridge, or amalgam filling instead of a crown). While questioned
             by some dentists, Concordia’s policy is permitted under the regulations
             and contract when such alternatives meet acceptable dental standards.
             Finally, Concordia’s marketing activities meet requirements.

             Even though the fixed-price contract places the greatest risk on
             Concordia, DOD’s oversight, generally relying on contractor self-reporting,
             does not provide DOD adequate assurance that the contractor is performing
             as required. To date, DOD has not conducted a contract performance
             evaluation nor independently verified Concordia’s data. Responding to our
             concerns, DOD officials told us they plan to conduct a performance
             evaluation in the summer of 1997, but they have not yet defined what the
             evaluation will entail. Also, the Deputy Assistant Secretary for Clinical
             Services recently proposed, among other changes, creating an oversight
             and advisory role for TRICARE regional dental officers regarding FMDP
             beneficiary appeals.


             The Congress established the FMDP in 1987 as a basic benefit program for
Background   the eligible dependents of active duty members of the seven uniformed
             services in the 50 states, the District of Columbia, Puerto Rico, Guam, and
             the U.S. Virgin Islands.5 The program is administered by TSO through the
             insurer, Concordia, as a fixed-price, fee-for-service contract. Thus,
             Concordia is “at risk” to pay all administrative and benefit costs for dental

             4
              Predeterminations authorize coverage, including the amount the beneficiary will have to pay, for
             proposed dental services.
             5
              10 U.S.C. 1076a authorizes the Secretaries of Defense, Transportation, and Health and Human
             Services to administer the Active Duty Dependents Dental Plan for the Army, Navy, Air Force, Marine
             Corps, Coast Guard, and the Commissioned Corps of both the Public Health Service and National
             Oceanic and Atmospheric Administration. The program was expanded to Canada in 1995.



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services provided under the contract. Initially, the dental plan benefits
specified by the Congress and administered by DDP*Delta provided only
basic coverage with a strong preventive focus. In 1993, the Congress
expanded the authorized benefits, effectively restructuring the dental plan
into a comprehensive program comparable to many plans offered to
private sector employees (covered dental benefits are shown in table II.1).

Participation in the FMDP is through voluntary enrollment by the active
duty member, whose monthly premium is paid in advance through a
payroll deduction. Single and family enrollment options are available
under defined circumstances. Family members who are eligible for FMDP
coverage are spouses and unmarried children under the age of 21 (or
under age 23 if in college and financially dependent). The FMDP benefit
year runs from August 1 through July 31, there is no deductible, and the
yearly maximum benefit payment is a total of $1,000 per family member
for all services except orthodontia (which has a separate lifetime
maximum of $1,200 per family member). The monthly premium cost is
shared by the government (60 percent) and the active duty member
(40 percent). On the basis of the premium rate projections in its final bid,
Concordia’s FMDP premiums are automatically increased at an average rate
of 5.7 percent each year to account for rising dental charges and other
costs. (See table II.2 for FMDP premiums, 1995-2001.)

Family members may receive dental care from a dentist of their choice but
will save money, time, and paperwork if they use Concordia dentists
participating in a developed network. Participating dentists are those who
have signed contracts with and accept Concordia’s fee allowances in full
for covered services, and they cannot charge family members for any
difference between their usual fee and Concordia’s allowance (other than
the applicable cost-share amount). In addition, participating dentists file
claims and accept payment directly from Concordia.6 Concordia’s fee
allowances for reimbursing nonparticipating dentists are lower than those
for participating dentists, and nonparticipating dentists can bill the family
members the balance of payment between their usual charge and
Concordia’s fee allowance. This may lead to higher out-of-pocket costs for
family members.

Concordia’s succession as the FMDP contract insurer was delayed 6 months
following the unsuccessful bid protest by the incumbent contractor,
DDP*Delta. In February 1995, after TSO awarded the contract to Concordia

6
 With the family member’s permission, nonparticipating dentists can file claims and accept payment
directly from Concordia.



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                       for the 5-year period August 1, 1995, to July 31, 2000, DDP*Delta filed a
                       protest of the award with GAO.7 The protest triggered a delay in
                       Concordia’s performance. It also caused DOD to allow DDP*Delta to
                       continue performing under its contract and to modify the Concordia
                       contract to change the period of performance to February 1, 1996, through
                       July 31, 2001. In June 1995, GAO denied the protest, upholding DOD’s
                       contract award to Concordia. DDP*Delta next sought a preliminary
                       injunction against DOD’s proceeding with Concordia as its contractor by
                       filing suit in the U.S. District Court in the Northern District of California. In
                       February 1996, the court denied DDP*Delta’s injunction request and
                       upheld DOD’s contract award to Concordia. While the legal challenges
                       played out during 1995 and 1996, Concordia and DOD encountered
                       considerable negative publicity that raised congressional and public
                       concerns about Concordia’s ability to administer the FMDP. Among other
                       impacts, the fallout from the publicity impeded Concordia’s recruitment of
                       dentists to join its network. DOD and Concordia responded to the criticisms
                       in part by citing substantial cost savings—$112 million—to the
                       government and beneficiaries as a result of awarding the contract to
                       Concordia instead of DDP*Delta.


                       While Concordia is required to pay dentists at certain fee levels (or less
No Regulatory or       when billed charges are lower), neither the regulations nor the FMDP
Contractual Criteria   contract specify how such fees should be set, such as on the basis of
for Judging Fee        “prevailing charges” during a certain period of time, nor whether or when
                       fees should be reviewed or revised. As a result, the regulations and the
Appropriateness        contract provide no assurance that fees paid are appropriate. We found,
                       moreover, that Concordia’s initial February 1996 fees, which were based
                       on prevailing charges in 1993 and 1994, were less up to date than its
                       August 1996 fees, which were based on Concordia’s own charge data
                       during the first 6 months.

                       Both DOD regulations and the FMDP contract have general requirements that
                       the insurer pay participating dentists at a level that provides financial
                       incentive for them to participate, when compared with the maximum fee
                       level paid to nonparticipating dentists. Concordia established a maximum




                       7
                         The Competition in Contracting Act of 1984 (31 U.S.C. 3551 et seq.) allows bidders to seek relief from
                       GAO when they have reason to believe that a federal contract has been awarded improperly or
                       illegally, or that they have been unfairly denied a contract. GAO considers the facts and legal issues
                       raised and issues a decision. GAO may sustain, deny, or dismiss the protest.



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                           fee level at a certain percentile8 in its final offer for participating dentists,
                           which is considered proprietary and thus is not discussed here. For
                           nonparticipating dentists, regulations and the contract require a maximum
                           fee level equivalent to the 50th percentile of prevailing fees charged by
                           dentists for similar services in the same region.


Concordia’s Initial Fees   To determine initial fees, Concordia developed separate fee allowance
Less Up to Date Than Its   schedules for participating and nonparticipating dentists that
Revised Fees               encompassed 192 dental procedures grouped in seven regions. These fees,
                           used to reimburse dentists during the contract’s first 6 months, were based
                           on 2-year-old insurance industry data on charges submitted by dentists.
                           Concordia used this method because it lacked its own charge data
                           experience with which to develop initial fees, so it used pooled industry
                           data from 1993 and 1994. Also, the delay in the contract’s start date,
                           caused by DDP*Delta’s unsuccessful bid protest, made the initial fees even
                           less current. Furthermore, Concordia was under no regulatory or
                           contractual obligation to adjust or trend the initial fees, such as through
                           the use of a trend factor based on historic annual dental charge increases.

                           Concordia revised its fees in August 1996. After 6 months of program
                           experience, Concordia used its own charge data to adjust its fee
                           allowances for many procedures, and it increased to 16 the number of fee
                           allowance regions from the 7 regions used in setting initial fees. Our
                           actuarial analysis showed that the revised fees are substantially higher
                           (about 10 percent, on average) and conform with more recent charge
                           practices. Lacking sufficient charge data, however, Concordia did not
                           revise fee allowances for the less frequently billed services, which account
                           for more than half of the 192 dental procedures in each of its schedules.
                           Thus, such fees remain based on prevailing 1993 and 1994 charge data,
                           now 2 to 3 years behind the trend.

                           Although not required, had Concordia’s initial fees been based on more
                           up-to-date charge data, the company would have paid out more in
                           maximum allowances to dentists during the contract’s first 6 months. For
                           example, recent dental charge increases have been fairly consistent at 5 to
                           6 percent per year. Approximating the effect of applying a 5-percent 1994
                           through 1995 dental charge trend increase to Concordia’s 1993 through


                           8
                            The use of percentiles, rather than averages of charges, is an established practice for setting health
                           care fee allowances. The reason is that use of a percentile, such as the 50th percentile, ensures that
                           50 percent of the claims will be at or below that charge amount. When using averages, a few outliers
                           (very high or very low charges by a few dentists) could result in a fee schedule that covers
                           substantially more or less than the desired percentage of claims from all dentists.



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                        1994 industry charge data, we estimated that such additional payments
                        would have been $2.5 million. Concordia used such dental charge trends in
                        setting the beneficiary and government premium increases for the
                        contract’s 5 years. Moreover, for the first year’s premium (originally
                        August 1995 through July 1996), Concordia used a 1993-to-1994 base
                        period. Then it adjusted the base for estimated annual increases in dental
                        use and charge practices through February 1996. Concordia established
                        annual premium increases through July 2001, the life of the contract, on
                        the basis of projected period increases in dental charges and other factors
                        affecting costs. In discussions with us, Concordia officials said that
                        trending fee allowances, rather than using empirical claims experience,
                        could inappropriately inflate the program’s costs because some dentists
                        submit bills at the maximum allowable charge. They also said that the
                        insurance industry does not trend fee schedules and uses a baseline period
                        that may be 1 to 2 years before the fee application period, and thus what
                        Concordia did is consistent with industry practice. In contrast, however,
                        they also said that projecting dental charge and related costs for purposes
                        of setting future-year premium rates is financially appropriate when
                        bidding on a fixed-price contract.


Not Clear Whether and   Concordia officials told us that they planned to review their fees every 12
How Concordia Would     to 18 months throughout the contract, but are under no regulatory or
Update Fees in Future   contractual obligation to do so, nor are they obligated to make
                        modifications. Concordia and DOD officials told us that the contract
                        provides Concordia the flexibility to develop and change fee allowances in
                        the manner it sees fit. Also, Concordia and DOD officials said that as long as
                        sufficient numbers of dentists accept its fees and participate in
                        Concordia’s network, the company in effect has satisfied the program’s
                        requirements. We question, however, whether such an interpretation
                        recognizes the regulatory and contractual requirements stating that the
                        contractor should cap its provider fees at certain percentiles based on
                        prevailing rates within a region. Hypothetically, a contractor could unfairly
                        enhance its profitability by holding dentist fee increases below historic
                        trends while enjoying premium increases that more closely track projected
                        dental charge trends during the contract’s option years. Also, paying fees
                        based on out-of-date dental charges could lead to higher out-of-pocket
                        costs for beneficiaries electing to use nonparticipating dentists (when
                        such dentists bill them for the balance of their full charges). But unless
                        DOD establishes how such requirements are to be met, the contractor in
                        effect is allowed to determine compliance and fee appropriateness. Thus,




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                         it is unclear whether and how Concordia might see fit to update its fees in
                         the future.

                         Along with agreeing with the contractor on what constitutes prevailing
                         charges for fee-setting purposes, there are several ways in which DOD
                         could consider establishing its fee requirements. One would be to require
                         that fee allowances be reviewed on some periodic basis over the
                         remainder of the contract, updating as necessary to ensure that the fees
                         are as close as possible to expected charges. The Medicare program offers
                         another way to determine fees: It uses a 12-month experience period
                         ending 6 months before the application period (thus, a lag of 12 months
                         from the midpoint of the prevailing charge base period and the start of the
                         fee application period). Alternatively, in the absence of actual claims
                         experience, an overall trend reflecting historic charge data could be used
                         to periodically update fees, similar to the way that Concordia fixed its
                         premium increases between 1996 and 2001 (such as the recent trend of 5-
                         to 6-percent annual increases).


                         When Concordia took over the contract in February 1996, concerns were
Concordia’s Dental       raised that its initial network of about 31,000 dentists would be inadequate
Network Meets the        compared with DDP*Delta’s reported network of 109,000 dentists. In the
35-Mile Requirement      areas we reviewed, however, Concordia’s network of participating dentists
                         easily meets DOD’s requirement for access to a general dentist within 35
                         miles of a beneficiary’s home. But in two remote military base areas in
                         Idaho and Nevada, the number of available dentists is insufficient for
                         Concordia to develop an adequate network. In a third area, Jacksonville,
                         North Carolina, nearly all dentists have declined to participate in
                         Concordia’s network. Data were not available in time for us to test
                         Concordia’s compliance with DOD’s second network requirement—that
                         participating general dentists give beneficiaries an appointment within 21
                         days.


Concordia Continues to   Concordia is required to establish a network of participating general
Expand Its Network of    dentists so that beneficiaries can obtain a routine dental appointment
Participating Dentists   within 35 miles of their residence and within 21 days.9 Beneficiaries’
                         access to participating dentists is important because their out-of-pocket

                         9
                          Where these requirements are not met, Concordia must pay claims for all dental services based on the
                         dentist’s actual billed charge, less any applicable copayment. Concordia’s fee schedules for
                         participating and nonparticipating dentists do not apply. This situation applies to Fallon Naval Air
                         Station, Nev.; Mountain Home Air Force Base, Ind.; and Camp Lejeune Marine Base and Cherry Point
                         Marine Air Station, N.C.



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                                     costs are lower when their care is obtained from a participating dentist.
                                     Concordia has continued to recruit dentists for its network, and between
                                     February and November 1996, increased the number of participating
                                     dentists from about 31,000 to nearly 45,000, as shown in figure 1.


Figure 1: Expansion of Concordia’s
Participating Dentist Network,       Number of Participating Dentists
February-November 1996               45000

                                     40000

                                     35000

                                     30000

                                     25000

                                     20000

                                     15000

                                     10000

                                      5000

                                         0
                                                  ry




                                                         y



                                                                   st



                                                                              er
                                                        Ma



                                                                  gu
                                               ua




                                                                         mb
                                             br




                                                                Au



                                                                         ve
                                             Fe




                                                                        No




                                          Month




                                     By November 1996, Concordia had successfully recruited about 8,100
                                     dental specialists—about 18 percent of its total network (see fig. 2).
                                     Moreover, according to Concordia, participating dentists delivered about
                                     82 percent of the dental services provided to beneficiaries (see table 1 for
                                     the numbers of participating and nonparticipating dentists as of
                                     November 1996).




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Figure 2: Composition of Concordia’s
Network of Participating General and
Specialty Dentists as of                                                                     1%
November 1996                                                                                Endodontists

                                                                                             5%
                                                                                             Oral Surgeons

                                                                                             6%
                                                                                             Orthodontists

                                                                                             3%
                                                                                             Pediatric Dentists

                                                                                             2%
                                                                                             Periodontists

                                                                                             1%
                                                                                             Prosthodontists




                                                            •
                                                        •

                                                    •




                                                                    82% •                    General Dentists




                                                 General Dentists

                                                 Specialists



                                       Note: Periodontists specialize in treating gum disease; endodontists specialize in diseases of
                                       tooth pulp and perform root canals; prosthodontists replace missing teeth with dentures or
                                       bridges; and orthodontists correct misaligned teeth.




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Table 1: Concordia’s Participating and
Nonparticipating Dentists,                                                       Number of participating                         Number of
November 1996                            Category of dentist                                    dentists          nonparticipating dentistsa
                                         General                                                       36,379                              21,686
                                         Endodontist                                                       605                                345
                                         Oral surgeon                                                    2,306                                582
                                         Orthodontist                                                    2,773                              1,900
                                         Pediatric                                                       1,177                                462
                                         Periodontist                                                    1,023                                409
                                         Prosthodontist                                                    205                                  68
                                         Total                                                         44,468                              25,452
                                         a
                                           The number of nonparticipating dentists is based on analysis of the number who provided
                                         services and submitted claims to Concordia through November 1996.



                                         Taking into account the distribution of beneficiaries and dentists, we
                                         reviewed the adequacy of Concordia’s network of dentists within 35 miles
                                         of each beneficiary zip code at 21 military base areas (see table I.2 for a list
                                         of the 21 areas we examined).10 At all 21 installations, we found overall
                                         that Concordia’s network meets the 35-mile network requirement for
                                         participating general dentists.11 Also, a more general analysis showed that
                                         Concordia would only need a total network of about 7,300 dentists, if
                                         optimally distributed, to meet the expected need for dental services by the
                                         1.8 million beneficiaries.

                                         Finally, in an effort to enhance beneficiary convenience, DOD is
                                         considering alternatives to the current or future FMDP contract in the
                                         35-mile network requirement for FMDP participating dentists. These
                                         alternatives include reducing the distance in nonrural areas from 35 miles;
                                         identifying maximum beneficiary drive time to reach the dentist; and using
                                         proximity to dentists within residential zip codes. Along with enhanced
                                         beneficiary access, we believe that DOD needs to consider ability to
                                         measure contractor compliance with any new network standard. We
                                         noted, moreover, that the distance between a beneficiary’s residence and a
                                         dentist’s office is currently being measured by Concordia and would not

                                         10
                                           Our estimates of needed dentists are based on conservative actuarial assumptions that participating
                                         dentists would spend no more than 10 percent of their time treating all FMDP beneficiaries. Thus, in
                                         the likely event that some of the participating dentists in these locations treat more FMDP
                                         beneficiaries and that some beneficiaries would elect to use nonparticipating dentists, fewer
                                         participating dentists would actually be needed.
                                         11
                                           We found a shortage of four pediatric dentists at two zip code locations (Fort Stewart, Hinesville,
                                         Ga.; and Fort Hood, Killeen, Tex.) serving 22,000 beneficiaries. This is not a contract violation, because
                                         the 35-mile requirement does not apply to specialists. In addition, a general dentist can provide the
                                         same services to children as a pediatric dentist.



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                          require any change in Concordia’s information system. But compliance
                          with a beneficiary travel time standard would be more difficult to
                          determine and may require beneficiary surveys.


Compliance With 21-Day    Data were not available for us to reliably measure whether Concordia’s
Appointment Requirement   network complied with the 21-day appointment requirement. Concordia
                          officials told us that, to satisfy this requirement, they rely in part on a
                          customer service phone number for beneficiary complaints about
                          scheduling dental appointments.12 Because both Concordia and DOD plan
                          beneficiary satisfaction surveys in 1997, more information should be
                          available about the beneficiaries’ ability to get appointments with
                          participating dentists within the 21-day standard.


Three Areas Still Have    Concordia has been unsuccessful in establishing adequate networks at
Inadequate Provider       three military base areas. Two of the areas, Mountain Home Air Force
Networks                  Base, Mountain Home, Idaho; and Fallon Naval Air Station, Fallon,
                          Nevada, are in remote locations where access would remain inadequate
                          even if all available dentists participated. Also, despite continued
                          recruitment efforts, Concordia has not succeeded in establishing the
                          required network of participating dentists at the third area, Camp Lejeune
                          Marine Corps Base in Jacksonville, North Carolina, and nearby at Cherry
                          Point Marine Air Station in Havelock, North Carolina. Without an adequate
                          dental network, beneficiaries cannot realize cost savings from accessing a
                          participating dentist.

                          The Jacksonville and Havelock areas are unique in that about 57,000
                          beneficiaries and 70 dentists are located in these communities, but only
                          one Jacksonville dental office has signed on with Concordia and the others
                          have declined to participate. During August 1996 discussions with us,
                          many of the local dentists complained about Concordia’s general
                          management of the program, citing conflicts with Concordia’s
                          representatives and problems with its claims processing. Concordia
                          officials told us they had hoped to gain network participation in
                          Jacksonville and Havelock after they raised fees in August 1996, but to
                          date the situation has not changed.

                          In October 1996, the Assistant Secretary of Defense, Health Affairs,
                          directed his staff, in consultation with Concordia, to work on resolving the

                          12
                           Concordia’s FMDP benefits booklet informs beneficiaries of the 21-day and 35-mile requirements for
                          accessing a participating general dentist and provides a toll-free customer service number to call if a
                          beneficiary has trouble scheduling an appointment.



                          Page 13                                  GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                           B-276142




                           Jacksonville and Havelock impasse. As of January 1997, Health Affairs was
                           considering several remedial interventions but had not yet decided on a
                           course of action.


                           During the contract’s early months, Concordia was not meeting the claims
Claims Processing          processing time limit but is now doing so for all dentists. Likewise,
and Marketing              Concordia’s data on processing claims to authorize coverage for proposed
Activities Meet            dental services (known as predeterminations) show that it did not meet
                           the established time limit in the early months of the contract. In addition,
Contract                   Concordia’s policy to pay only for certain alternative less expensive
Requirements               treatments is permitted under the contract and regulations. Finally,
                           Concordia’s marketing activities meet contract requirements.


Concordia Claims           In evaluating contract bids, DOD ranked FMDP claims processing as the most
Processing Is Now Timely   important factor. Concordia’s contract requires that it operate a single
                           processing, adjustment, development, and control system enabling it to
                           process claims through payment or denial. Ninety percent of claims must
                           be processed to completion within 21 days of receipt.13 Also, when
                           requested by a dentist or beneficiary, Concordia is required to provide a
                           predetermination—a written estimate of what it will pay and what the
                           beneficiary will be responsible for paying—for a proposed dental
                           treatment. Seventy-five percent of predeterminations must be processed to
                           completion within 21 days of receipt. In March 1996, as required,
                           Concordia began to self-report monthly statistics to TSO that the
                           Contracting Officer’s representative used to track compliance with the
                           claims processing requirements.

                           In response to concerns about the timeliness of Concordia’s claims
                           processing, we analyzed the claims records for all payments and
                           predeterminations from February through September 1996 and compared
                           our results with Concordia’s reported statistics.

Payment Claims             Our review of February through September 1996 claims records showed
                           that Concordia has consistently processed claims from all participating
                           and nonparticipating dentists within the 90-percent, 21-day established
                           time limit since June 1996 (see fig. 3).


                           13
                            Claims are processed to completion when all services and supplies on the claim have been settled;
                           payment has been determined on the basis of covered services; allowable charges have been applied to
                           maximums and/or denied; and checks and written explanation of benefits have been prepared for
                           mailing to providers and beneficiaries.



                           Page 14                                GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                                   B-276142




Figure 3: Percentage of Claims
Processed Within the 90-Percent,   Percentage
21-Day Requirement, 1996           100

                                    90

                                    80

                                    70

                                    60

                                    50

                                    40

                                    30

                                    20

                                    10

                                     0
                                              ry



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                                                    As Reported by Concordia to TSO

                                                    GAO Analysis




                                   Some nonparticipating dentists complained that Concordia was tardy in
                                   processing and paying their claims. The contract’s timeliness requirements
                                   for processing participating and nonparticipating dentists’ claims are the
                                   same. Concordia met the timeliness requirement for processing
                                   participating dentists’ claims in 5 of the 8 months analyzed, but processed
                                   nonparticipating dentists’ claims on time in only 2 of the 8 months (see fig.
                                   4). In January 1997, Concordia officials explained to us that these
                                   differences, especially in the contract’s early months, were due in part to
                                   the additional time it took to document that nonparticipating dentists were
                                   authorized to provide dental care (that is, were licensed or certified).
                                   Concordia is required to authorize all dentists and to not pay for any
                                   service furnished by a dentist who is not authorized. In addition, they
                                   explained that nearly all nonparticipating dentists submit paper claims




                                   Page 15                                  GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                                       B-276142




                                       rather than file them electronically, and paper claims typically take longer
                                       to process.


Figure 4: Comparison of Claims
Processed Within the 90-Percent,       Percentage
21-Day Requirement for Participating   100
and Nonparticipating Dentists, 1996
                                        90

                                        80

                                        70

                                        60

                                        50

                                        40

                                        30

                                        20

                                        10

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                                                        Participating Dentists

                                                        Nonparticipating Dentists



Predetermination Claims                In the contract’s early months, Concordia encountered major difficulties in
                                       its automated system for tracking predeterminations. As a result,
                                       Concordia did not comply until July 1996 with the contract requirement
                                       that it report predetermination timeliness statistics to TSO. DOD’s
                                       Contracting Officer’s representative told us he was aware the company
                                       was working on the problem, and thus held off formally citing Concordia
                                       for the reporting deficiency. Our analysis showed that Concordia met the
                                       required processing time limit in 4 of the 8 months (see fig. 5). The
                                       representative, moreover, was unaware that Concordia had not met the
                                       requirements during March, April, and May.




                                       Page 16                                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                                      B-276142




Figure 5: Percentage of
Predeterminations Processed Within    Percentage
the 75-Percent, 21-Day Requirement,   100
1996
                                       90

                                       80

                                       70

                                       60

                                       50

                                       40

                                       30

                                       20

                                       10

                                           0
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Concordia’s Policy to Pay             Both DOD’s regulations and the contract authorize Concordia to limit
for Less Costly Treatments            benefit payments to less expensive courses of treatment that meet
Is Consistent With                    acceptable dental standards. In addition, Concordia defined this policy in
                                      its benefits brochure distributed to all beneficiaries and dentists.14
Requirements                          Between April and September 1996, Concordia denied over 4,000 fixed
                                      bridges and crowns, instead only allowing payment for less costly
                                      treatments. Concordia’s application of this policy caused dissatisfaction
                                      on the part of some dentists and was also the subject of criticism by the
                                      previous contractor, DDP*Delta. All complained that more costly
                                      treatments should be allowed as long as the treatments are appropriate
                                      and necessary. These sources also cited Concordia’s statements published
                                      shortly after taking over for DDP*Delta that there would be no change in
                                      dental benefit coverage and that Concordia’s coverage would be the same
                                      as DDP*Delta’s. The DDP*Delta executive in charge of the FMDP contract
                                      through January 1996 told us that his company paid for all necessary


                                      14
                                        Concordia’s policy, known as “optional or alternative treatment,” applies to prosthodontia services
                                      (bridges and dentures) and other restorative services (crowns and cast restorations, onlays, and so
                                      on). The policy allows payment for a less costly adequate treatment instead of a more costly treatment
                                      (removable denture instead of a fixed bridge, or amalgam filling instead of a crown).



                                      Page 17                                  GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                             B-276142




                             services and, in his opinion, DOD and Concordia are inappropriately
                             reducing FMDP benefits.

                             Our review of the regulations and contract requirements does not support
                             a conclusion that Concordia is inappropriately reducing FMDP benefits.
                             According to the requirements, the authority to make benefit
                             determinations and authorize FMDP payments rests primarily with the
                             insurer, Concordia. In exercising this authority, Concordia may establish,
                             in accordance with generally acceptable dental benefit practices, an
                             alternative course of treatment policy that allows less costly treatment
                             than the treatment selected by the dentist and beneficiary. TSO officials
                             also agreed that Concordia’s practice to pay on the basis of less costly
                             treatments is consistent with DOD’s long-standing position that health care
                             delivery contractors implement such cost controls as utilization
                             management and limitations and exclusions in determining covered
                             benefits. Furthermore, TSO officials told us that Concordia’s alternative
                             treatment policy is not a reduction in FMDP benefits, since the basic benefit
                             structure is unchanged and, within each benefit category (for example,
                             restorative or prosthodontia services), a range of treatments can correct a
                             condition. Nonetheless, in response to the criticisms, Concordia officials
                             told us they obtained TSO agreement to modify the policy. Thus, since
                             October 1996, Concordia has been paying for fixed bridges in some
                             instances where previously it paid for removable dentures.


Concordia’s Marketing        Concordia is required to have a marketing program involving specific
Activities Comply With       activities to facilitate beneficiary and dental provider understanding of
Contract Requirements        program benefits, limitations and exclusions, and Concordia’s
                             administrative procedures. We found that Concordia has carried out these
                             required activities, which include

                         •   developing and distributing an 88-page benefit brochure to beneficiaries,
                             dentists, and uniformed services’ health benefits advisors (HBA);
                         •   publishing and distributing quarterly news bulletins to dentists,
                             congressional offices, and HBAs;
                         •   establishing a network of professional dental relations representatives
                             who provide educational services to dentists by making personal visits and
                             giving annual half-day seminars,
                         •   establishing a network of 10 dental benefit advisors who provide
                             representation at military installation briefings and workshops, and
                             educate HBAs about the dental program; and




                             Page 18                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                         B-276142




                     •   developing, maintaining, and distributing quarterly update lists of
                         participating dentists to HBAs to assist beneficiaries in selecting a dentist.

                         Although not required to do so, Concordia also distributed to dentists a
                         reference guide giving detailed instructions and information on such
                         topics as claims submission, covered services, and the appeals process.
                         Concordia also produced a video for use at military installations to
                         educate beneficiaries about the program. Currently, to further encourage
                         enrollment, Concordia is targeting marketing efforts on active duty
                         sponsors and eligible family members returning from overseas
                         assignments where FMDP is unavailable.


                         Within DOD, there is shared organizational responsibility for overseeing all
DOD’s Oversight Is       health benefits programs, including FMDP. TSO has the authority for
Not Sufficient to        day-to-day contract oversight, while the Office of the Assistant Secretary
Ensure Compliance        of Defense, Health Affairs, provides policy guidance, management control,
                         and coordination. TSO appoints a contracting officer’s representative, who
                         has specific duties and functions. In addition, the contract requires that
                         TSO conduct periodic contract performance evaluations, but does not
                         specify how or when these evaluations are to be done.

                         To date, DOD’s level of effort to oversee Concordia’s contract performance
                         can be characterized as “hands off.” For the most part, the information DOD
                         uses to monitor contract performance (for example, monthly claims
                         processing reports statistics) is self-reported by Concordia and not
                         independently verified by the Contracting Officer’s representative. Also,
                         the representative spends much of his time on such other FMDP matters as
                         obtaining and incorporating the service branches’ comments on
                         Concordia’s draft FMDP publications and responding to external inquiries
                         and complaints about the program. Since April 1996, the Contracting
                         Officer’s representative has twice visited Concordia’s facility for 2-day
                         meetings and to observe claims and customer service operations.

                         DOD has also conducted two “in-progress reviews” with the contractor,
                         organized by Health Affairs. At these meetings, Concordia representatives
                         briefed DOD participants on the program’s status and the company’s
                         progress and performance in meeting the contract requirements. Also, the
                         Contracting Officer’s representative and DOD dental project officers have
                         met with Concordia to focus on internal administrative action items and
                         seek general information updates from the contractor. Health Affairs staff




                         Page 19                        GAO/HEHS-97-58 DOD Dental Contractor’s Performance
              B-276142




              provided satisfactory appraisals of Concordia’s then-current performance
              based on the meetings.

              In our view, this is a “hands off” approach to oversight and does not
              provide assurance that the contractor is performing as required in critical
              task areas. In discussions with us, DOD officials pointed out that the
              contract has a fixed price, such that the contractor bears most of the cost
              risk associated with poor or nonperformance. Nonetheless, DOD officials
              agreed with us that the contract’s human services nature requires that they
              act to ensure satisfactory performance and compliance with key contract
              requirements. Thus, they said they plan to conduct an evaluation of
              Concordia’s performance in the summer of 1997 and will set about
              defining what critical task areas to include and how the evaluation is to be
              carried out.

              Finally, as part of its ongoing effort to integrate military dental care into its
              regional health care system, DOD is looking at expanding FMDP oversight
              authority to local dental commanders and regional dental advisors. Among
              other proposals, the Deputy Assistant Secretary, Clinical Services, wants
              to require that all appeals of Concordia’s dental benefit decisions filed
              with TSO be forwarded to TRICARE regional dental advisors for review and
              recommendations.15 As described, however, the proposals do not address
              oversight of Concordia’s performance in critical task areas, such as fee
              appropriateness, network adequacy, and claims processing timeliness.


              The 5-year FMDP contract between DOD and Concordia will cost about $1.9
Conclusions   billion and deliver comprehensive dental health care to over 1.8 million
              military family members. The changeover in FMDP contract administrator
              from DDP*Delta to Concordia was accomplished with considerable
              difficulty. Negative publicity brought concerns about whether Concordia
              was providing satisfactory dental care to DOD beneficiaries and whether
              DOD was acting to ensure that Concordia performed in accordance with
              contract requirements.

              While Concordia now pays dentists fees based on more up-to-date charge
              data than the fees it paid during the contract’s first 6 months, neither the
              regulatory nor contract requirements to pay dentists at certain maximum
              levels (or less if billed charges are lower) are specific enough for DOD to

              15
                If beneficiaries or participating dentists disagree with Concordia’s benefit decision, they may appeal
              the decision through three levels in the appeals system: reconsideration by Concordia; formal review
              by TSO of Concordia’s reconsideration decision on cases over $50; and a hearing by TSO on the result
              of the formal review on cases over $300.



              Page 20                                  GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                           B-276142




                           determine the appropriateness of Concordia’s fees. Also, Concordia’s
                           network of participating dentists appears adequate now, but, without
                           reasonable fees and targeted DOD surveillance, installations could
                           gradually lose dentists and imperceptibly fail to meet local populations’
                           needs. Concordia’s claims processing and marketing functions are also
                           within contract requirements, but DOD needs, on an ongoing basis, to
                           assure itself that Concordia continues to satisfactorily administer these
                           critical tasks. Remaining to be seen is whether DOD’s planned evaluation of
                           Concordia or extension of oversight authority to regional and local dental
                           commanders will address the key contract areas discussed in this report.


                           To position DOD to ensure contractor compliance with the FMDP’s
Recommendations to         requirements, we recommend that the Secretary of Defense direct the
the Secretary of           Assistant Secretary of Defense, Health Affairs, to require that
Defense
                       •   discussions be held with the contractor and, as appropriate, the contract
                           modified to clearly state how prevailing charges are to be established for
                           fee-setting purposes, including the method and frequency for reviewing
                           and, as appropriate, revising the fee schedules;
                       •   future FMDP requests for proposals require that the contractor’s start-up
                           fees it pays to dentists reflect prevailing charges established in the same
                           manner as above or, if needed, be adjusted with a trend factor to
                           approximate such charges; and
                       •   a contract oversight strategy be developed that efficiently targets the
                           (1) appropriateness of Concordia’s fee schedules; (2) adequacy of its
                           networks; (3) timeliness of its claims and predeterminations processing;
                           and (4) efficacy of its marketing activities.


                           We obtained written comments from Concordia and DOD on a draft of this
Comments From              report.
United Concordia
Companies, Inc., and
DOD and Our
Evaluation
Comments From              Concordia stated that it was pleased with our findings about the
Concordia                  company’s performance in the task areas reviewed. But Concordia
                           objected to, among other matters, any suggestion that its initial fees
                           resulted in some underpayment. Our report merely illustrates what the



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effect may have been had Concordia’s initial fees been as up to date as its
August 1996 fees, but clearly acknowledges that the company was under
no regulatory nor contractual requirement to update them. While
Concordia is required to cap its provider fees at certain percentiles based
on prevailing rates within the region, neither the regulations nor the
contract establish how prevailing rates should be set or whether or how
often fees should be reviewed or revised.

Concordia commented further that if it had adjusted its initial fees as the
report suggests, it would not have made the August 1996 adjustments. And
it estimated that if the initial fees had remained in effect for the entire
year, the difference in fee payments from what were actually made would
have been negligible. But Concordia officials could not provide, when we
contacted them, enough detail about the estimate’s basis for us to judge its
validity. Although adjusting the fees as Concordia suggests might have
resulted in a more equitable fee spread throughout the year, further
analysis is needed to arrive at such a conclusion. Moreover, because
Concordia is not required to do so, it is unclear whether and how
Concordia might see fit to update its fees during the contract’s 4 remaining
option years.

Concordia also commented that its initial claims processing timeliness
problems resulted from the bid protest, which caused a 6-month delay in
starting work under the contract. We did not attempt to assess whether
the delayed contract start, in fact, led to such start-up problems, but the
delay actually added 6 weeks to the normal 6-month transition period.
Concordia also commented that the initial difference in processing times
for nonparticipating and participating dentists’ claims was not the result of
any discriminatory practices on its part. We have no basis for, nor does the
report draw, such a conclusion.

Concordia also referred in its comments to a beneficiary survey it did that
identified high levels of satisfaction among beneficiaries with their ability
to get appointments. We did not evaluate Concordia’s survey approach nor
its methodology. DOD’s beneficiary survey results, moreover, should be
available sometime this year and should provide independent information
with which to judge Concordia’s performance against the appointment
time standard.

Concordia also separately suggested some technical changes to the report,
which we incorporated as appropriate. Concordia’s comments are
presented in their entirety in appendix III.



Page 22                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                    B-276142




Comments From DOD   In its overall comments, DOD stated that it concurs with the report’s
                    findings that Concordia currently meets contract requirements and that
                    this outcome is largely due to DOD’s proactive oversight of the contract. As
                    discussed below, we disagree with DOD’s view of its oversight role.

                    DOD  did not concur with our first recommendation and partially concurred
                    with the second recommendation—both of which are aimed at clarifying
                    how Concordia and future contractors are to meet regulatory and
                    contractual requirements bearing on establishing dentist fees. DOD stated
                    that rather than imposing prescriptive, process-oriented requirements on
                    the contractor, it selected the firm, fixed-price contract and used an
                    outcomes-based approach to procure these services. DOD said that what
                    we have recommended would undermine that strategy, increase program
                    costs, and restrict the contractor’s ability to take advantage of innovative
                    financing methodologies.

                    An important outcome of the contract—like an adequate dentist network
                    and timely claims processing—is the establishment of appropriate dentist
                    fees. In fact, the contractor is required by regulation and the contract to
                    cap its fees at certain percentiles based on prevailing rates in the region.
                    But, while the contract provides standards for what constitutes an
                    adequate network and timely claims processing, in effect the contractor is
                    left to determine whether its fees are appropriate and how the fee
                    requirements are to be met. Rather than adding more process
                    requirements to the contract, our recommendations are aimed at clarifying
                    the current fee requirements so that both DOD and the contractor can
                    determine when fees comply with the requirements.

                    Moreover, we disagree that our recommendations would inappropriately
                    increase program costs. Rather, we believe the program’s integrity
                    requires that participating and nonparticipating dentists receive
                    reasonable fees commensurate with the winning bidder’s fee-level
                    proposals and applicable regulations. And, because Concordia’s annual
                    fixed premiums are based on projected dental charges and other factors
                    affecting its costs through 2001, we believe it is reasonable to assume that
                    such rates need not be affected and should provide sufficient revenue to
                    cover the costs of fair and reasonable dentists’ fees during the contract’s
                    option years. Contractor costs, and consequently beneficiary copayments,
                    could be somewhat higher if dentists’ fees are required to be more up to
                    date, but this would depend almost entirely upon the mutually agreed-to
                    basis for prevailing rates and the contractor’s current practices. While DOD
                    asserts that network adequacy is the true test for fee appropriateness, we



                    Page 23                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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believe that such an interpretation fails to recognize the separate
regulatory and contractual requirements that relate to dentists’ fees. In
addition, DOD’s concerns that the contractor may not use innovative
financing strategies if fee appropriateness is established appear baseless.
Rather, as stated in the report, the contractor now can innovatively,
though unfairly, enhance its profitability by holding dentist fee increases
below historic trends while enjoying fixed premium increases that more
closely track projected dental charge trends during the contract’s option
years. Thus, we believe that defining prevailing rates for fee-setting
purposes would help to ensure fairer, more equitable dentists’ payments
and contractor costs that legitimately reflect going market conditions.

DOD  also commented that it chose the firm, fixed-price contract vehicle for
the FMDP contract to meet the tenets of the Federal Acquisitions
Streamlining Act of 1994 (FASA) to seek less prescriptive contract
requirements and readily available commercial services. But DOD’s FMDP
acquisition plan stated that the program had not been designated as
subject to acquisition streamlining and, according to DOD, the FMDP request
for proposals (RFP) was identical to the prior contract’s RFP, which
preceded FASA. Also, the FMDP RFP was more than 150 pages long, including
a 42-page statement of work. In contrast, an apparently streamlined RFP for
selected reserve personnel’s dental services released in December 1996
was 17 pages, including a 13-page work statement.

In partially concurring with our second recommendation about fee setting
in future FMDP RFPs, DOD said that future proposals would require that
initial fee schedules be based on prevailing charge data. But DOD continues
to assume a specification for establishing and reviewing prevailing charges
when none now exists in the regulations or the proposed RFP. Concordia,
for example, was also required to base its fees on prevailing charges, but
by the time its initial fees were applied, they were based on 2-year-old
data. Furthermore, DOD went on to temper its concurrence with our
recommendation by stating that including the new requirement in future
RFPs would cause bidders to build risk premiums into their bids. We
question DOD’s basis for this concern, however, and believe that the effects
of competition on bidders’ behavior remain to be seen. Thus, we continue
to believe that DOD should take the actions called for in our
recommendation.

While DOD said it concurred with our third recommendation to develop an
effectively targeted oversight strategy, it went on to say that its proactive
oversight strategy now assures it and the Congress that the contractor is



Page 24                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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performing as required. DOD concluded that our finding that the contractor
is performing within the contract’s requirements points out the efficacy of
its oversight.

We disagree with DOD’s assertions about its oversight role. As we point out
in the report, DOD has not independently verified contractor-reported data
on claims processing timeliness, network adequacy, or ongoing fee
appropriateness, and, without GAO’s findings, DOD lacks a credible basis for
concluding that the contractor is meeting contract requirements. DOD
commented that, in addition to its oversight activities discussed in the
report, it conducted a benchmark test of Concordia’s ability to process
claims before services were delivered. But this was a test of Concordia’s
potential, rather than actual, performance. Also, DOD commented that it
made a site visit shortly after service delivery began to Jacksonville, North
Carolina, to discuss concerns about the contract transition. But this visit
was in reaction to local dentists’ complaints that Concordia’s fees were
too low and about a host of other alleged contractor performance
problems. Therefore, we continue to believe that the report accurately
depicts DOD’s contract oversight thus far, and that DOD needs to begin to
proactively and independently monitor the appropriateness of Concordia’s
fee schedules, adequacy of its networks, timeliness of its claims
processing, and efficacy of its marketing activities.

DOD’s   comments are presented in their entirety in appendix IV.


As arranged with your offices, we will distribute copies of this report to
the Senate Armed Services Committee and Senate and House
Appropriations committees; the Secretary of Defense; United Concordia
Companies, Inc.; the Director, Office of Management and Budget; and
other interested parties. Copies will also be made available to others upon
request.

Please contact me on (202) 512-7111 if you or your staff have any
questions concerning this report. Other GAO contacts and staff
acknowledgments are listed in appendix V.




Stephen P. Backhus
Director, Veterans’ Affairs and
  Military Health Care Issues

Page 25                        GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Contents



Letter                                                                                            1


Appendix I                                                                                       28
                      Concordia Fee Schedules                                                    28
Scope and             Concordia Participating Dentists Network                                   31
Methodology           Concordia Claims Processing and Marketing                                  33

Appendix II                                                                                      35

Information on FMDP
Benefits and
Premiums
Appendix III                                                                                     36

Comments From
United Concordia
Companies, Inc.
Appendix IV                                                                                      39

Comments From the
Department of
Defense
Appendix V                                                                                       44

GAO Contacts and
Staff
Acknowledgments
Tables                Table 1: Concordia’s Participating and Nonparticipating Dentists,          12
                        November 1996
                      Table I.1: Dental Procedure Fees Analyzed by GAO                           29
                      Table I.2: Military Base Areas Selected to Assess Concordia’s              31
                        Participating General Dentist Network’s Compliance With 35-Mile
                        Requirement
                      Table II.1: Benefits Covered by FMDP Program                               35




                      Page 26                     GAO/HEHS-97-58 DOD Dental Contractor’s Performance
          Contents




          Table II.2: FMDP Annual Premium Paid by Active Duty Sponsor                35
            and Government, August 1995-July 2001

Figures   Figure 1: Expansion of Concordia’s Participating Dentist                   10
            Network, February-November 1996
          Figure 2: Composition of Concordia’s Network of Participating              11
            General and Specialty Dentists as of November 1996
          Figure 3: Percentage of Claims Processed Within the 90-Percent,            15
            21-Day Requirement, 1996
          Figure 4: Comparison of Claims Processed Within the 90-Percent,            16
            21-Day Requirement for Participating and Nonparticipating
            Dentists, 1996
          Figure 5: Percentage of Predeterminations Processed Within the             17
            75-Percent, 21-Day Requirement, 1996




          Abbreviations

          DOD        Department of Defense
          FASA       Federal Acquisitions Streamlining Act of 1994
          FMDP       Family Member Dental Plan
          HBA        health benefits advisor
          RFP        request for proposals
          TSO        TRICARE Support Office


          Page 27                     GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I

Scope and Methodology


                In conducting our review, we examined FMDP program and contract
                documents obtained from DOD and Concordia. We reviewed applicable
                legislation, DOD regulations and policies, contract requirements, and
                information on the 1995 through 1996 bid protest and district court lawsuit
                by DDP*Delta. We interviewed Concordia, DOD, and military officials at
                various locations. We also interviewed a limited number of participating
                and nonparticipating dentists in North Carolina, Colorado, and Virginia
                and representatives of DDP*Delta and the American Dental Association.
                We conducted our work at the Office of the Assistant Secretary of
                Defense, Health Affairs, Washington, D.C.; TSO, Aurora, Colorado; Camp
                Lejeune Marine Corps Base, Jacksonville, North Carolina; Fort Bragg
                Army Base, Fayetteville, North Carolina; Norfolk Naval Station, Norfolk,
                Virginia; Langley Air Force Base, Hampton, Virginia; Fort Eustis Army
                Base, Newport News, Virginia; Peterson Air Force Base and Fort Carson
                Army Base, Colorado Springs, Colorado; and at Concordia’s Camp Hill,
                Pennsylvania, office. We did our work from June 1996 through
                January 1997 in accordance with generally accepted government auditing
                standards.


                To do our work on Concordia’s fee allowances for dentists, we obtained
Concordia Fee   actuarial assistance from the Hay Group. To evaluate the adequacy of both
Schedules       sets of fee allowances, we reviewed Concordia’s actuarial methodologies;
                compared Concordia’s February and August 1996 fees for selected
                procedures; and verified whether Concordia’s revised fees are set at the
                required percentile levels for participating and nonparticipating dentists.
                We analyzed claims data from Concordia reporting actual charges by
                dentists for the period February 1 through June 30, 1996, for the 26
                frequently incurred dental procedures listed in table I.1. We did not verify
                Concordia’s data for accuracy or consistency. Claims that were reported
                after August 31 but before October 24, 1996, were included in the data set
                supplied by Concordia. Concordia provided the following data: (1) claim
                number, (2) dollar charge submitted by dentist, (3) dental procedure code,
                (4) date of service, (5) frequency of procedure, (6) dentist state and zip
                code, (7) Concordia fee schedule region, and (8) dental specialty.




                Page 28                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                                   Appendix I
                                   Scope and Methodology




Table I.1: Dental Procedure Fees
Analyzed by GAO                    Procedure code                    Dental procedure
                                   Diagnostic
                                   00110                             Initial exam
                                   00120                             Periodic exam
                                   00272                             Two bitewing X rays
                                   00274                             Four bitewing X rays
                                   00330                             Panorex X ray
                                   Preventive
                                   01110                             Adult prophylaxis
                                   01120                             Child prophylaxis
                                   01203                             Child fluoride
                                   01204                             Adult fluoride
                                   01351                             Sealant, per tooth
                                   Basic restorative
                                   02140                             Amalgam restoration, one surface
                                   02150                             Amalgam restoration, two surfaces
                                   02160                             Amalgam restoration, three surfaces
                                   Crowns
                                   02750                             P/m crown, high noble metal
                                   02751                             P/m crown, base metal
                                   02752                             P/m crown, noble metal
                                   Root canal
                                   03310                             Root canal therapy, anterior tooth
                                   03330                             Root canal therapy, molar
                                   Gum disease treatment
                                   04341                             Periodontal scaling & root planing,
                                                                     quadrant
                                   04210                             Gingivectomy, quadrant
                                   04260                             Osseous surgery
                                   Removable denture
                                   05110                             Complete upper denture
                                   05214                             Lower partial denture, cast metal base
                                   Fixed bridge
                                   06750                             Abutment crown, porcelain fused to high
                                                                     noble metal
                                   Oral surgery
                                   07110                             Extraction, single tooth
                                   07240                             Extraction, complete bony impaction




                                   Page 29                 GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I
Scope and Methodology




To verify how Concordia set its August 1996 fee allowance percentiles for
nonparticipating and participating dentists, we analyzed 2 million claims
for the 26 procedures listed in table I.1. For each procedure, we arrayed
the claims data from highest-dollar submitted charge to lowest-dollar
submitted charge and then numbered from one (being the lowest
submitted charge) up to the total number of claims (being the highest
submitted charge). We determined the 50th percentile as follows: The total
number of claims was multiplied by 0.5 to determine the position of the
50th percentile. That number is P(50). The actual charge amount at
P(50) was identified as the 50th percentile. If P(50) was a fraction, then the
50th percentile is the average of the charges just below and above P(50).

We also estimated how much more Concordia would have paid to dentists
between February and August 1996 if it had updated the initial fee
schedules using more recent charge data in the same way that it updated
fee schedules in August 1996, that is, using charge data from the 5-month
period of February through June 1996. The estimate was derived by
comparing Concordia’s actual claims expenses under the initial fee
schedules with the claims expenses that would have been paid under the
revised August 1996 fee schedules. We determined the weighted average
increase in fees for each of the 26 dental procedures shown in table I.1.
Then, to determine which claims would have been reimbursed in full (that
is, because the actual charge was at or below the trended maximum fee
allowance), we determined the percentage of claims that were at, above,
and below the February 1996 fee schedules for participating and
nonparticipating dentists. This resulted in an average increase of $1.71 per
claim to reflect Concordia’s actual claims expense if it had used the
revised August 1996, rather than the initial February 1996, fee schedules,
which yielded a total difference in payment of $3.5 million. We then
interpolated the $3.5 million to estimate what the payment difference
would have been if Concordia had used July 1995 through November 1995
charge data from the outset. This interpolation was done by calculating
the lag between the midpoint of the claims experience period used for the
initial February fee schedules (Mar. 1, 1994) and the revised August 1996
fee schedules (Apr. 15, 1996), which is 25.5 months. Next, we calculated
the lag between the midpoint of the claims experience period used for the
initial February 1996 fee schedule and the alternative July through
November 1995 claims experience period (Sept. 15, 1995), which is 18.5
months. Multiplying $3.5 million by 18.5/25.5 yields an estimate of
$2.5 million. This estimate approximates the results of applying a 5-percent
trend.




Page 30                       GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                                          Appendix I
                                          Scope and Methodology




                                          To evaluate Concordia’s network, we obtained actuarial assistance from
Concordia                                 the Hay Group. DOD regulations specify two requirements in order for the
Participating Dentists                    insurer’s network to be in compliance with the FMDP contract: (1) a
Network                                   beneficiary must be able to obtain an appointment within 21 days with a
                                          participating general dentist and (2) the participating general dentist must
                                          be within 35 miles of the beneficiary’s home. No similar requirements exist
                                          regarding specialists. To determine whether Concordia’s network is
                                          adequate, we analyzed detailed data on 21 military base areas (see table
                                          I.2) and summary data on dentists and beneficiaries in the nationwide
                                          FMDP service area. The 21 sites serve 37 percent of the total FMDP
                                          beneficiary population and were judgmentally chosen in consultation with
                                          DOD to provide a mix of (1) large and small beneficiary populations,
                                          (2) adequate and potentially inadequate networks, and (3) rural and urban
                                          locations.

Table I.2: Military Base Areas Selected
to Assess Concordia’s Participating                                                                                   Enrolled
General Dentist Network’s Compliance      Military base area                           State                      beneficiaries
With 35-Mile Requirement                  San Diego Naval Station and Camp             California                      119,292
                                          Pendleton Marine Corps Base
                                          Fort Carson Army Base and U.S. Air Force     Colorado                         42,609
                                          Academy
                                          Fort Benning Army Base and Fort Stewart      Georgia                          50,304
                                          Army Base
                                          Scott Air Force Base                         Illinois                         13,345
                                          Fort Campbell Army Base                      Tennessee and                    35,463
                                                                                       Kentucky
                                          Keesler Air Force Base                       Mississippi                      17,075
                                          McGuire Air Force Base and Fort Dix Army     New Jersey                        6,738
                                          Base
                                          Fort Bragg Army Base and Seymour             North Carolina                   75,682
                                          Johnson Air Force Base
                                          Fort Sam Houston Army Base, Lackland Air     Texas                            48,171
                                          Force Base, and Randolph Air Force Base
                                          Fort Hood Army Base                          Texas                            53,565
                                          Norfolk Naval Station, Langley Air Force     Virginia                        153,916
                                          Base, and Fort Eustis Army Base
                                          Fort Lewis Army Base                         Washington                       46,766

                                          Our analyses were based on (1) the number of beneficiaries, (2) the
                                          number of dentists that have signed with the network, (3) the number of
                                          dentists who have not signed with the network but have submitted claims
                                          to Concordia, and (4) the frequency of services expected by the




                                          Page 31                            GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I
Scope and Methodology




beneficiaries. To perform our analyses, we obtained from Concordia the
following information: (1) GeoNetworks16 reports consisting of dental
providers and beneficiaries at the 21 military bases as of October 1996,
(2) utilization reports on the frequency of visits per beneficiary as of
August 1996, (3) the number of services performed per dentist for claims
paid through August 1996, (4) nationwide data on the number of
participating providers as of November 1996, and (5) the total number or
beneficiaries enrolled nationwide in the FMDP as of November 1996. We
inflated the reported number of services provided to estimate the annual
amount; we did not adjust the data to reflect incurred but not billed
services. We did not verify Concordia’s source data for accuracy.

To determine whether Concordia’s network met DOD’s 35-mile standard at
21 selected military base areas, we analyzed Concordia’s GeoNetworks
system reports, which provide the proximity of dentists to beneficiaries
within specified distances. However, this analysis did not address
frequency of utilization or whether beneficiaries could obtain
appointments with participating general dentists within 21 days. Because
data were not available in time to assess Concordia’s compliance with the
21-day requirement, we adopted an alternative methodology to determine
the adequacy of the network, including both general dentists and
specialists, at the 5-digit zip code level for each of the 21 military base
areas. For this methodology, we projected the number of dental
procedures that beneficiaries could be expected to incur over a year and
organized them by type of specialty. For each type of dental specialist, we
estimated an individual dentist’s productivity with regard to treating FMDP
beneficiaries. We used individual dentist productivity rates with regard to
treating FMDP beneficiaries. We obtained these productivity rates from the
American Dental Association, and they represent the number of
procedures that a dentist could perform in a year, based on the type of
treatment specified.17

We then computed the number of dentists, by specialty, needed to supply
the services demanded by FMDP beneficiaries by dividing the annual
demand, by specialty, by the number of services a single dentist could

16
 GeoNetworks is a software system developed by GeoAccess Corporation that provides capability to
analyze the proximity and number of health care providers to beneficiaries. Concordia used this
software to measure the distance in miles between beneficiaries and participating and
nonparticipating dentists for the 21 military bases we selected for study.
17
 Bureau of Economic and Behavioral Research, Distribution of Dentists in the United States by
Region and State: 1991 (Chicago, Ill.: American Dental Association, 1993) as cited by Rosa G. Moy,
Gordon R. Trapnell, John C. Wilkin, and C. William Wrightson, Estimation of the Requirements for
Dentists in the TRICARE Active Duty Family Member Dental Plan (Annandale, Va.: Actuarial Research
Corporation, 1995), p. 8.



Page 32                               GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                   Appendix I
                   Scope and Methodology




                   complete in a year. We further modified this computation by assuming the
                   dentist would devote only 10 percent of his or her time to treating FMDP
                   patients. Although in some areas participating dentists may devote
                   significantly more time to care of FMDP patients, we used 10 percent as a
                   conservative assumption. That is, if Concordia’s network is adequate
                   under this conservative assumption, it likely would be adequate under
                   nearly all demand scenarios.

                   Finally, to address the question of whether Concordia has established an
                   adequate network of participating dentists nationwide, we used the
                   Concordia data on the total number of services provided by both
                   participating and nonparticipating dentists, and the estimated dental
                   provider productivity estimates discussed earlier to estimate the number
                   of network dentists needed to perform all the services (based on
                   nationwide utilization). We then compared these estimated needs for
                   dentists with the actual number of participating dentists in the nationwide
                   network to determine whether that total number is sufficient to service the
                   FMDP nationwide beneficiary population.



                   To evaluate Concordia’s claims processing performance, we focused on its
Concordia Claims   compliance with contract standards for timeliness. We did not evaluate the
Processing and     accuracy of Concordia’s benefit determinations (that is, the amount paid
Marketing          by Concordia as well as the amount not covered and why). We reviewed
                   Concordia’s monthly reports to TSO on payment and predetermination
                   claims processing timeliness from February through September 1996. In
                   addition, we obtained Concordia’s computerized records for 1.8 million
                   claims processed from February through September 1996 in order to
                   perform our own analysis of timeliness and verify the accuracy of
                   Concordia’s reported statistics to TSO. For payment claims, we calculated
                   the length of time it took to process the claims from the date of receipt to
                   the payment date. For predetermination claims, we used the date of
                   receipt to the finalized or settlement date to calculate timeliness because
                   these types of claims do not have a payment date. We also did analysis
                   comparing the timeliness of payment claims between participating and
                   nonparticipating dentists because some nonparticipating dentists
                   complained about delays in receiving payment for their services.

                   Regarding Concordia’s “optional or alternative treatment” policy, we
                   reviewed that policy against legal requirements set by DOD regulations and
                   contractual provisions, as well as Concordia’s technical proposal and
                   beneficiary and dental provider publications that describe the use of the



                   Page 33                      GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix I
Scope and Methodology




policy to limit benefit payments for certain dental services. We reviewed
Concordia statistics on the number of claims on which the policy was
applied between April and October 1996. In addition, we obtained the
views of officials from DOD, Concordia, DDP*Delta, and several dentists
about Concordia’s policy and whether or not it represents a reduction in
dental benefits.

To evaluate Concordia’s marketing performance, we reviewed the contract
requirements and collected publications and other communication
documents from Concordia to assess compliance with the contract terms.
Among the publications obtained and examined were the benefit booklet
(Your Dental Benefit Booklet: TRICARE Active Duty Family Member
Dental Plan); quarterly newsletters (FMDP Alliance and FMDP Dental
Courier); miscellaneous fact sheets; a draft dentist reference guide on
FMDP benefits, policies, and procedures; a 23-minute videotape (Active
Duty Family Member Dental Plan), and quarterly reports on the activities
of Concordia’s regional professional relations staff and dental benefits
advisors during their visits to dentist offices and military bases. In
addition, we observed two of Concordia’s 1/2-day professional relations
seminars for dental office staff in Williamsburg, Virginia, and Denver,
Colorado.




Page 34                      GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix II

Information on FMDP Benefits and
Premiums

Table II.1: Benefits Covered by FMDP
Program                                                                                                     Percentage of treatment cost
                                       Dental treatment category                                                     covered by insurer
                                       Routine oral exams and X raysa                                                                        100
                                       Cleaning and fluoridationa                                                                            100
                                                   b
                                       Sealants                                                                                              80
                                       Fillings and certain basic crowns                                                                     80
                                       Root canal                                                                                            60
                                       Gum disease                                                                                           60
                                       Oral surgery                                                                                          60
                                       Other crowns, onlays, cast restorations                                                               50
                                       Removable dentures and fixed bridges                                                                  50
                                       Braces                                                                                                50
                                       a
                                           Limited to two routine exams or treatments every 12 months. Other restrictions apply to X rays.
                                       b
                                        On permanent first molars through age 10 and on permanent second molars through age 15;
                                       one sealant per tooth in a 3-year period.



Table II.2: FMDP Annual Premium Paid
by Active Duty Sponsor and             Benefit year                     Single enrollment                        Family enrollment
Government, August 1995-July 2001      ending                    Sponsor           DOD           Total    Sponsor           DOD          Total
                                       July 1996                    $81.24      $121.80      $203.04       $203.04       $304.56      $507.60
                                       July 1997                     86.28       129.36        215.64       215.64        323.52        539.16
                                       July 1998                     91.68       137.40        229.08       229.08        343.68        572.76
                                       July 1999                     97.08       145.68        242.76       242.76        364.20        606.96
                                       July 2000                    102.36       153.60        255.96       255.96        384.00        639.96
                                       July 2001                    109.32       163.92        273.24       273.24        409.92        683.16




                                       Page 35                                    GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III

Comments From United Concordia
Companies, Inc.




               Page 36   GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III
Comments From United Concordia
Companies, Inc.




Page 37                          GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix III
Comments From United Concordia
Companies, Inc.




Page 38                          GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV

Comments From the Department of Defense




              Page 39   GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                Appendix IV
                Comments From the Department of Defense




Now on p. 21.




Now on p. 21.




                Page 40                         GAO/HEHS-97-58 DOD Dental Contractor’s Performance
                    Appendix IV
                    Comments From the Department of Defense




Now on p. 21.




Now on pp. 19-20.




                    Page 41                         GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV
Comments From the Department of Defense




Page 42                         GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix IV
Comments From the Department of Defense




Page 43                         GAO/HEHS-97-58 DOD Dental Contractor’s Performance
Appendix V

GAO Contacts and Staff Acknowledgments


                  Daniel M. Brier, Assistant Director, (202) 512-6803
GAO Contacts      Carolyn R. Kirby, Evaluator-in-Charge, (202) 512-9843


                  In addition to those named above, the following individuals made
Staff             important contributions to this report: Bonnie Anderson, who evaluated
Acknowledgments   the adequacy of Concordia’s fees and participating dentist network; Jean
                  Chase and Darrell Rasmussen, who evaluated Concordia’s claims
                  processing and marketing performance and DOD’s oversight; Vanessa
                  Taylor and Robert DeRoy, who analyzed Concordia’s claims processing
                  timeliness; Dayna Shah, who provided legal analysis of Concordia’s
                  contract performance and DOD’s oversight; and Pamela Tumler and Nancy
                  Crothers, who provided writing assistance.




(101495)          Page 44                      GAO/HEHS-97-58 DOD Dental Contractor’s Performance
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