oversight

Audit of the Federal Employees Dental And Vision Insurance Program Operations As Administered By The Government Employees Hospital Association, Inc

Published by the Office of Personnel Management, Office of Inspector General on 2010-09-27.

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

                                                     U.S. OFFICE OF PERSONNEL MANAGEMENT
                                                           OFFICE OF THE INSPECTOR GENERAL
                                                                            OFFICE OF AUDITS




Final Audit Report
Subject:


AUDIT OF THE FEDERAL EMPLOYEES DENTAL

    AND VISION INSURANCE PROGRAM

    OPERATIONS AS ADMINISTERED BY

      THE GOVERNMENT EMPLOYEES

       HOSPITAL ASSOCIATION, INC.

         LEE'S SUMMIT, MISSOURI



                                            Report No. IB-31-00-10-006


                                            Date: September 27, 2010




                                                            -CAUTION-­
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.c. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
                            UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 204]5



  Office of the
Inspector General




                                             AUDIT REPORT





                    Audit of the Federal Employees Dental and Vision Insurance Program

                                           OPM-RFP-06-00060-6


                       Government Employees Hospital Association, Inc. As Administrator

                                         Lee's Summit, Missouri



       REPORT NO. IB-31-00-10-006                                      DATE: September 27, 2010




                                                               Michael R. Esser
                                                               Assistant Inspector General
                                                                 for Audits




         www.opm.goY                                                                         www.usajobs.goY
                           UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                  Washington, DC 20415


   Office of the
Inspector General




                                          EXECUTIVE SUMMARY





                    Audit of the Federal Employees Dental and Vision Insurance Program

                                           OPM-RFP-06-00060-6


                      Government Employees Hospital Association, Inc. As Administrator

                                        Lee's Summit, Missouri



       REPORT NO. IB-31-00-10-006                                         DATE: September 27, 2010

       This report details the results of our audit of the Federal Employees Dental and Vision Insurance
       Program (FEDVIP) operations at the Government Employees Hospital Association, Inc. (GEHA)
       located in Lee's Summit, Missouri. GEHA provides dental insurance benefits under the
       FEDVIP program. The audit covered the testing of application controls over claim benefit
       payments, administrative expenses, premiums, cash management activities, Health Insurance
       Portability and Accountability Act compliance, fraud and abuse polices and procedures, and
       subcontracts for contract years 2007 and 2008. The results of our audit showed that the dental
       benefits were administered in accordance with contract OPM-RFP-06-00060-6 and the FEDVIP
       regulations (5 CFR Part 894).




                               -~   -   ~~~----

        www.opm.gov                                                                          www.usajobs.gov
                              CONTENTS
                                            PAGE

       EXECUTIVE SUMMARY                      i


  I.   INTRODUCTION AND BACKGROUND            1


 II.   OBJECTIVES, SCOPE, AND METHODOLOGY     3


III.   AUDIT RESULTS                          7


IV.    MAJOR CONTRIBUTORS TO THIS REPORT      8

                    I. INTRODUCTION AND BACKGROUND


INTRODUCTION


This report details the results of our audit of the Federal Employees Dental and Vision Insurance
Program (FEDVIP) as administered by the Government Employees Hospital Association, Inc.
(GEHA). The audit was performed by the Office of Personnel Management's (OPM) Office of
the Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

FEDERAL EMPLOYEES DENTAL and VISION PROGRAM

The Federal Employees Dental and Vision Benefits Enhancement Act of2004, Public Law 108­
496, 118 Statute 4001, was signed into law on December 23,2004. This law established a dental
benefits and vision benefits program for Federal employees, annuitants, and their eligible family
members. The following 10 FEDVIP carriers all signed contracts with OPM to provide dental or
vision insurance services for a term of seven years:

               Dental
               •	 Aetna Life Insurance Company;
               •	 Government Employees Hospital Association, Inc.;
               •	 Metropolitan Life Insurance Company;
               •	 United Concordia Companies, Inc.;
               •	 Group Health, Inc.;
               •	 CompBenefits; and
               •	 Triple-S Salud, Inc.

               Vision
               •	 BlueCross BlueShield Association;
               •	 United HealthCare (formerly Spectera, Inc.); and
               •	 Vision Service Plan

The duties and responsibilities of insurance carriers participating in the FEDVIP program include
the following:

   1.	 To provide payments or benefits to an eligible individual if such individual is entitled
       thereto under the terms of the contract;
   2.	 With respect to disputes regarding claims for payments or benefits under the terms of the
       contract
           a.	 to establish internal procedures designed to expeditiously resolve such disputes;
           b.	 to establish, for disputes not resolved through procedures mentioned above,
               procedures for one or more alternative means of dispute resolution involving
               independent third-party review under appropriate circumstances by entities
               mutually acceptable to OPM and the carrier;



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   3.	 To make available to each individual eligible to enroll in a dental benefits plan,
       information on services and benefits to enable the individual to make an informed
       decision about electing coverage;
   4.	 To maintain accounting records that contain such information and reports as OPM may
       require;
   5.	 To furnish such reasonable reports as OPM determines to be necessary to enable it to
       carry out its functions; and
   6.	 To permit OPM and representatives of the Government Accountability Office to examine
       such records of the carrier as may be necessary to carry out the purposes of the contract.

GEHA

GEHA administers dental benefits under the FEDVIP. Contract number OPM-RFP-06-00060-6
between OPM and GEHA was awarded on August 29, 2006. Incorporated by reference into this
contract are OPM-RFP-06-00060-6 and Amendments 001,002 and 003.

GEHA provides dental insurance benefits to Federal employees, annuitants, and their eligible
family members. The contract between OPM and GEHA is for a seven year period, starting
December 31, 2006, and ending December 31, 2013, with the option to renew the contract.

This was our first audit ofGEHA's program operations as it relates to the FEDVIP program.




                                               2

              II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES


The objectives of our audit of GEHA relating to the FEDVIP was to determine compliance with
Contract OPM-RFP-06-00060-6, and the FEDVIP regulations (5 CFR Part 894). Our specific
audit objectives for this audit were as follows:

   Benefit Payment Application Controls
      •	 To obtain an understanding of GEHA's claims processing system.
      •	 To determine whether the carrier has appropriate controls/edits in place to prevent the
          payment of unallowable claims.
      •	 To determine whether the carrier has a program in place to protect enrollees and the
          carrier's claims system from instances of fraud and abuse.
      •	 To determine whether GEHA has proper application controls in place over its claim
          processing and check-writing systems to help ensure that FEDVIP-related
          transactions are valid, properly authorized, and completely and accurately processed.

   Administrative Expenses
     •	 To determine if administrative expenses incurred for the FEDVIP program by GEHA
        and reported to OPM as part of the premium determination were actual, necessary,
        reasonable, and allocable to the program.

   Premiums
      •	 To determine whether the FEDVIP premium cost and its relative components are
         derived from amounts that are allowable, allocable and reasonable to the program.

   Cash Management Activities
      •	 To determine if the FEDVIP funds are held and invested in an interest-bearing bank
         account separate from GEHA's other lines of business; if these funds are held until
         they are used to pay claims; and if the amount claimed for investment income is
         accurate.
      •	 To determine ifGEHAlFEDVIP has adequate outstanding check procedures in place,
         and to determine if it currently has any checks that have been outstanding for more
         than two years.

   Health Insurance Portability and Accountability Act (HIPAA)
      •	 To determine ifGEHA is in compliance with HIPAA regulations.

   Fraud and Abuse
      •	 To determine how GEHA prevents instances of and protects its FEDVIP dental
         subscribers from fraud and abuse.
      •	 To determine if the fraud and abuse policies and procedures implemented and
         followed by GEHA were sufficient to meet the contract requirements.




                                               3

   Subcontracts
      •	 To determine if GEHA adheres to the subcontracting provisions stipulated within the
         Contract.
      •	 To determine if there were any subcontracts where FEDVIP costs exceeded the
         Federal regulation threshold ($550,000) and did not receive OPM approval.
      •	 To determine if OPM's contracting office approved any significant changes to the
         original subcontract.

SCOPE

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on the audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on the audit objectives.

The audit covered the testing of application controls over claim benefit payments, administrative
expenses, premiums, cash management activities, HIPPA compliance, fraud and abuse policies
and procedures, and subcontracts for contract years 2007 and 2008. We performed our fieldwork
from November 30 to December 18,2009, at GEHA's offices in Lee's Summit, Missouri.
Additional audit work was completed in our offices in Washington, D.C. after the on-site visit.

We reviewed the GEHAlFEDVIP premium reports for the years under review and found that
GEHA collected premium payments of approximately $29.5 million and $51.5 million in 2007
and 2008 respectively. Dental claim payments during the same period amounted to
approximately $26.7 million and $44.5 million.

In planning and conducting our audit, we obtained an understanding of GEHAlFEDVIP' s
internal control structure to help determine the nature, timing, and extent of our auditing
procedures. This was determined to be the most effective approach to select areas of audit. For
those areas selected, we primarily relied on substantive tests of transactions and not tests of
controls. Based on our testing, we did not identify any significant matters involving
GEHAlFEDVIP's internal control structure and its operation. However, since our audit would
not necessarily disclose all significant matters in the internal control structure, we do not express
an opinion on GEHAlFEDVIP's system of internal controls taken as a whole.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
GEHAlFEDVIP. Due to time constraints, we did not verify the reliability of the data generated
by the various information systems involved. However, while utilizing the computer-generated
data during audit testing, nothing came to our attention to cause us to doubt its reliability. We
believe that the data was sufficient to achieve the audit objectives.

We also conducted tests to determine whether GEHAlFEDVIP had complied with the contract,
the applicable procurement regulations (i.e., Federal Acquisition Regulations), and the laws and
regulations governing the Program. The results of our tests indicate that, with respect to the
items tested, GEHAlFEDVIP complied with all provisions of the contract and the federal
procurement regulations.

                                                  4
METHODOLOGY

To achieve our objectives related to benefit payment application controls, we:
   •	 Interviewed personnel to obtain an understanding of GEHA's claims processing system.
   •	 Documented and evaluated GEHA's policies and procedures currently in place to protect
       program emollees and program systems from fraud and abuse.
   •	 Developed 22 dental claim case scenarios based on information provided by GEHA and
       on the best practices of health insurance carriers. Results from the test cases were
       reviewed to determine whether GEHA has proper application controls in place over its
       claim processing and check-writing systems to ensure that FEDVIP-related transactions
       were valid, properly authorized, and accurately processed.

To test and determine if administrative expenses incurred by GEHA for the FEDVIP program
and reported to OPM as part of the premium determination were actual, necessary, reasonable,
and allocable to the program we judgmentally selected:
    •	 Three direct expense accounts with total amounts paid in 2007 and 2008 (combined) over
        $50,000, with the greatest percentage increase from 2007 to 2008. Additionally, we
        selected one account based on nomenclature review. Within each of the four accounts,
        we selected the following transactions to test:
            1.	 Claim Payment Supplies Account: We selected the top three transactions by high
                dollar amount;
            2.	 Contract Services Account: We selected all transactions (four) related to "Open
                Season;"
            3.	 Advertising Account: We selected all transactions (20) from the month with the
                most activity/transactions; and
            4.	 Managed Care Account: We selected all transactions (nine) from the first three
                months of 2008.
        Our administrative expense samples represented $353,841 out of a universe of
        $5,422,452.

To determine ifFEDVIP premiums were appropriately collected and paid we:
   •	 Reviewed the "Request for Proposal" agreements between OPM and GEHAlFEDVIP to
       determine the components of the premiums.
   •	 Judgmentally selected the premiums for May and June 2008 to verify the premiums
       received and recorded. The sample reviewed represented approximately $8.5 million of
       the $51.5 million in premiums received in 2008.

To achieve our objectives related to cash management activities we:
   •	 Reviewed the GEHAlFEDVIP bank statements and procedures related to accounting for
       FEDVIP premiums to determine whether the FEDVIP funds were maintained separately
       from GEHA's other lines of business.
   •	 Judgmentally selected the last four months of2008 to review interest earned and to
       determine if funds were invested and held in an interest-bearing account until used to pay
       claims, and if the amount reported as investment income was accurate. The interest
       received in these months amounted to $20,048 from a total for 2008 of$43,618.



                                                5
   •	 Reviewed the GEHAlFEDVIP outstanding checks policies and procedures and
      outstanding checks reports to detennine if the policies were reasonable and if there were
      any checks outstanding for more than two years.

To detennine ifGEHA is in compliance with the HIPAA regulations, we reviewed GEHA's
responses to our HIPAA questionnaire and it's internal HIPAA policies and procedures.

To achieve our fraud and abuse objectives, we interviewed GEHA personnel and reviewed
GEHA's internal fraud policies and procedures and other infonnation to gain an understanding
of their fraud and abuse program and to detennine compliance with the contract requirements.

To achieve our objectives related to subcontracts, we:
   •	 Obtained a listing of subcontracts requested for approval from OPM and GEHA.
   •	 Detennined whether any subcontract's costs exceeding $550,000 received appropriate
       approval.
   •	 Reviewed the costs charged to the FEDVIP program, for all qualifying subcontracts, to
       detennine if they were allowable, allocable and reasonable.

Because the samples we selected and reviewed in perfonning the audit were not statistically
based, the results could not be projected to the universe since it is unlikely that the results are
representative of the universe taken as a whole.

We used the FEDVIP contract, the Federal Acquisition Regulations, and the laws and regulations
governing GEHAJFEDVIP to detennine whether GEHA's application controls over claim
benefit payments, administrative expenses, premiums, cash management activities, HIPPA
compliance, fraud and abuse policies and procedures, and subcontracts were in compliance with
the tenns of the contract and the applicable regulations.

The initial results of our audit were discussed with GEHA during an exit conference at the end of
our on-site work. We did not issue a draft report for review and comment because GEHA
properly administered the program in accordance with Contract OPM-RFP-06-00060-6 and the
FEDVIP regulations (5 CFR Part 894).




                                                   6

                                III. AUDIT RESULTS


Based on our review of application controls over claim benefit payments, administrative
expenses, premiums, cash management activities, HIP AA compliance, fraud and abuse policies
and procedures, and subcontracts, we found that GEHA properly administered the program in
accordance with Contract OPM-RFP-06-00060-6 and the FEDVIP regulations (5 CFR Part 894).




                                             7

             IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

                  Auditor-In-Charge

            Auditor

              Auditor



_11II             Chief

                   enior Team Leader




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