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. Page 1 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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 Page 2 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 3 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 4 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 5 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 6 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 7 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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, Page 8 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 9 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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). Page 10 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 11 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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. Page 12 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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 rch ril y ne ly st er Ma Ju gu ua Ap mb Ju Ma br Au pte Fe Se Month 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 0 ry rch ril y ne ly st er Ma Ju gu ua Ap mb Ju Ma br Au pte Fe Se Month 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 ry rch ril y ne ly st er Ma Ju gu ua Ap mb Ju Ma br Au pte Fe Se Month 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 Page 21 GAO/HEHS-97-58 DOD Dental Contractor’s Performance B-276142 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 B-276142 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 B-276142 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 Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. 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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)