u.s. OFFICE OF PERSONNEL MANAGEMENT OFFICE OF THE INSPECTOR GENERAL OFFICE OF AUDITS Final Audit Report Subject: Audit of the Federal Employees Health Benefits Program Operations at HealthAmerica Pennsylvania, Inc. Report 1'\0. I C-26-00-I2-026 Date: November 6, 2012 -- CAUTION - Thi, audit r~port ha s b....n d i. trib u' .... to F~ dHal officials who n e rnpon.ib l~ for th~ adm ini stration of th~ audit..d p r ogr am. This audi t c.port m3~· co nta in p r oprieta r }"da la whic h i, prol ect..d b~· F ed ..r"l b w ( 18 G.S .C . 11105). T her ..fore, while this a ud it report i . anibbl.. ood... the F r ....d om oflnformation Act a nd m ad.. 3\-ailabl.. to t ho- p ubli c o n the DIG ...ebpage, caution ......d. to be n ,uci.ed b..fo .... . ..(u sin g th e report t o th e g......ral p ubli c " s it may conta in propri.. ' " r )"inf ormati on that was . ..dar ted from , .... publicly d i, lrib ut ..d rop y. AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization HealthAmerica Pennsylvania, Inc. Contract Number CS 2924-A - Plan Code 26 Pittsburgh, Pennsylvania Report No. 1C-26-00-12-026 November 6, 2012 Date: _________________ Michael R. Esser Assistant Inspector General for Audits -- 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. EXECUTIVE SUMMARY Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization HealthAmerica Pennsylvania, Inc. Contract Number CS 2924-A - Plan Code 26 Pittsburgh, Pennsylvania Report No. 1C-26-00-12-026 Date: November 6, 2012 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at HealthAmerica Pennsylvania, Inc. (Plan). The audit covered contract years 2009 through 2011, and was conducted at the Plan’s office in Pittsburgh, Pennsylvania. Based on our audit of these contract years, we have no questioned costs. However, we found the Plan applied inappropriate loadings to the FEHBP rates in all contract years. In contract years 2009 and 2010, the Plan applied a medical management fee to the FEHBP rates that was greater than the amount supported by the documentation. The amount applied was inappropriately allocated based on estimated usage percentages instead of the ratio of group enrollment to total enrollment. Additionally in contract years 2010 and 2011, the Plan applied an autism loading to the FEHBP rates. The costs associated with these loadings are included in the claims experience used to develop the FEHBP premium rates; therefore, no additional loadings are necessary. In developing the audited FEHBP rates, we adjusted the medical management fee in 2009 and 2010, and removed the autism loading from 2010 and 2011. Due to other adjustments to our audited FEHBP rates, there was no cost impact to the FEHBP rates in contract years 2009 through 2011. i CONTENTS Page EXECUTIVE SUMMARY .............................................................................................. i I. INTRODUCTION AND BACKGROUND..................................................................... 1 II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3 III. AUDIT FINDINGS AND RECOMMENDATIONS ...................................................... 5 1. Premium Rate Review ............................................................................................... 5 2. Inappropriate Benefit Loadings ................................................................................. 5 IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 7 Appendix (HealthAmerica Pennsylvania’s August 31, 2012 response to the audit findings) 1. INTRODUCTION AND BACKGROUND Introduction We completed an audi t of the Federal Employees Health Benefits Program (FE HB P) operations at HealthAmerica Pennsylvani a, Inc. (Plan) . The audit co vered co ntract years 2009 thro ugh 20 11, and wa s conducted at the Plan 's office in Pittsburgh, Pennsylvani a. The audit wa s conducted pursuant to the provisions of Contrac t CS 2924-A; 5 u.s .c. Chapter 89; and 5 Co de of Federal Regul ations (CFR) Chapter 1, Part 890 . The audit was performed by the Office of Personnel Ma nagement 's (OPM) Office of the Inspector Gene ral (DIG), as established by the Inspector Ge neral Act of 1978, as amended. Background The FE HEP wa s established by the Federal Employees Health Ben efi ts Ac t (Public Law 86 382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provide health insuran ce benefits for federal employees, annuitants, and dependents . The FEHBP is administered by Ol'M' s Healthcare and Insur an ce Office . Th e provisions of the Federal Employees He alth Benefits Ac t are implemen ted by O PM through regulations codified in Chapter 1, Part 890 of Title 5, CFR . Health insurance co verage is provided thr ough co ntracts with health insurance carriers who provide servi ce benefits, indemnity benefit s, or comprehensive medical serv ices . Community-rated ca rrie rs parti c ipating in the FEHBP are subject to various federal, state and local laws, regul ations, and ordina nce s. While most carriers are subject to state j uri sdic tion, many are further subj ect to the Health Ma intena nce Orga niza tion Ac t of 1973 (Public Law 93 222), as amende d (i.e., many co mmunity-rated carriers are federa lly qualified ). In addition, parti cipation in the FE HB P subjects the carriers to the Fede ral Employees Health Benefits Act and implementing regula tions promulgated by aPM. The FE HB P should pay a market pri ce FEHBP Contracts/ Members March 31 rate , which is de fined as the best rat e offered to either of the two groups closest 7,000 in size to the FEHBP. In co ntrac ting 6,000 with co nun uniry-rated carrie rs, a PM re lies on carrier co mpliance with 5,000 appro priate laws and regula tions and, 4,000 consequently , does not negoti ate base 3,0 00 rates . OPM negoti ations relate primaril y to the level of co verage and other unique 2,000 fea tures of the FE HB P. 1,000 o The cha rt to the right shows the number . Contracts of FEHBP co ntrac ts and members D Members reporte d by the Plan as of March 3 1 for eac h co ntract year audited. TIle Plan has parti cipated in the FE HB P since 1986 and provides health ben efits to FEHBP members in the Grea ter Pittsburgh and Nort hwestern Pennsylva nia area s . TIle last audit of the Plan conducted I by our office was in 2009 and covered contract years 2006 through 2008. All issues from that audit have been resolved. 2 II. OBJECTIVES, SCOPE, AND METHODOLOGY Objectives The primary objectives of the audit were to verify that the Plan offered market price rates to the FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable. Additional tests were performed to determine whether the Plan was in compliance with the provisions of the laws and regulations governing the FEHBP. Scope FEHBP Premiums Paid to Plan We conducted this performance audit in accordance with generally accepted government $45 auditing standards. Those standards require that $40 $35 Millions we plan and perform the audit to obtain $30 sufficient, appropriate evidence to provide a $25 $20 reasonable basis for our findings and conclusions $15 based on our audit objectives. We believe that $10 $5 the evidence obtained provides a reasonable $0 basis for our findings and conclusions based on 2009 2010 2011 Revenue $41.5 $37.2 $31.0 our audit objectives. This performance audit covered contract years 2009 through 2011. For these contract years, the FEHBP paid approximately $109.7 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart above. OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP contract, applicable laws and regulations, and OPM rate instructions. These audits are also designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts. We obtained an understanding of the Plan’s internal control structure, but we did not use this information to determine the nature, timing, and extent of our audit procedures. However, the audit included such tests of the Plan’s rating system and such other auditing procedures considered necessary under the circumstances. Our review of internal controls was limited to the procedures the Plan has in place to ensure that: • The appropriate similarly sized subscriber groups (SSSG) were selected; • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best rate offered to the SSSGs); and • the loadings to the FEHBP rates were reasonable and equitable. In conducting the audit, we relied to varying degrees on computer-generated billing, enrollment, and claims data provided by the Plan. We did not verify the reliability of the data generated by the various information systems involved. However, nothing came to our attention during our audit testing utilizing the computer-generated data to cause us to doubt its reliability. We believe 3 that the available data was sufficient to achieve our audit objectives. Except as noted above, the audit was conducted in accordance with generally accepted government auditing standards, issued by the Comptroller General of the United States. The audit fieldwork was performed at the Plan’s office in Pittsburgh, Pennsylvania, during April 2012. Additional audit work was completed at our offices in Jacksonville, Florida and Cranberry Township, Pennsylvania. Methodology We examined the Plan’s Federal rate submissions and related documents as a basis for validating the market price rates. In addition, we examined the rate development documentation and billings to other groups, such as the SSSGs, to determine if the market price was actually charged to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition Regulations, and OPM’s Rate Instructions to Community-Rated Carriers to determine the propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan’s rating system. To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the Plan’s rating system policies and procedures, interviewed appropriate Plan officials, and performed other auditing procedures necessary to meet our audit objectives. 4 III. AUDIT FINDINGS AND RECOMMENDTIONS 1. Premium Rate Review Based on our audit, we have accepted the Plan’s rating of the FEHBP for contract years 2009 through 2011, and have no questioned costs. 2. Inappropriate Benefit Loadings In contract years 2009 and 2010, the Plan applied a medical management fee to the FEHBP rates that was greater than the amount supported by the Plan’s documentation. Additionally, in contract years 2010 and 2011, the Plan applied an autism loading to the FEHBP rates. We adjusted the medical management loading in 2009 and 2010 and removed the autism loading in contract years 2010 and 2011. Medical management expenses are the operational costs incurred by the Plan and allocated to all product lines given various cost drivers associated with each department. The operational costs and cost drivers generate a per-member per-month (PMPM) charge per product line. The PMPM is applied to each group as a claims amount by taking the PMPM times each group’s member months. Our review of the operation costs incurred by the Plan and their methodology in allocating the costs to each product line show that the Plan estimated the percent of complex case enrollment and did not equitably allocate the adjustment in 2009 and 2010. We adjusted the complex case enrollment percentages by taking the Health Maintenance Organization member months and dividing by the total fully insured member months in 2009 and 2010. This adjustment lowered the medical management PMPM amount from to in contract year 2009, and from $ to , in contract year 2010. The autism loading is related to the cost for diagnostic assessment and treatment of individuals with autism spectrum disorders (ASD). The FEHBP has consistently provided medically necessary services for enrollees as part of its OPM-approved benefit package. The cost of allowable ASD services should already be reflected in the claims experience used to develop the FEHBP rates. Therefore, this additional loading is unnecessary. The medical management expense in 2009 and 2010 was overstated by the Plan and was adjusted based on our analysis of the support. Additionally, the loading for ASD was deemed inappropriate and removed from our audited FEHBP rates in contract years 2010 and 2011. However, since the FEHBP received a market rate after the adjustments were made, the inappropriate loadings had no cost impact. Plan’s Comments (see Appendix): The Plan states that they have modified the allocation of medical management costs for 2011 and all years going forward by using a member month basis, which is a verifiable allocation basis. Also, the autism loading has been removed from all ratings for 2012 and going forward. 5 OIG’s Comments: We accept the Plan’s statement that they will exclude the ASD loading in the FEHBP rates going forward. Additionally, we accept the Plan’s response to the medical management finding. We will verify that the medical management fee is correctly allocated, and the loadings are excluded during subsequent OIG audits. Recommendation 1 We recommend that the contracting officer require the Plan to allocate medical management costs by using verifiable allocation methods, such as member months, rather than estimates, and exclude the autism loading in the FEHBP rate developments going forward. 6 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group , Auditor-In-Charge , Lead Auditor , Lead Auditor Chief , Senior Team Leader 7 APPEND IX C O VE N T RY T H r AI T l l A M r RI C A August ai. 20 12 Chief, Commun ity- Rated Audits Divis ion l~ .S. Office of Personnel vlanagem em Offi ce of t he In spect or General 800 Cranbe rry Wood s Orin ' Cranlx>rry Town ship . P,\ If.>Of'6 He: Draft Rt!P0l1 of Heal thamc r ica Pennsylvan ia. Inc. - P ittsbu rgh, Pennsylvania a rea un de r FEHBP 2009 t hrough 20 11 Dear _ This tett er respond s to your corre sponde nce of Augu st 'j. 20 12 enclos ing t he d raft re port ("Dra ft en Re port') de ta iling the- r£'8 U It S of t he Office of Inspec to r General's COl audit of t he Fede ral Emp loye es Hea lt h Ben efit " Plan n ·'r: H BP·') opera t ion" at Healrhamerica Pen nsylva nia . Inc. Pittsbu rgh. Pennsylvan ia Area r'thc Pla n") for cont ract years ZOO!) th rou gh 201 1. Per you r request, we art' also enclosm g a CO with ou r comme nts along with this ha rd copy. We app reciate till.' oppor t un ity to add ress th ese points prior to issuance of the fina l audit repo rt by the DIG. We ha ve reviewed t he Draft Report provided by your office incl uding the re comm enda ti on mad e on page 2. In re sponse to th at reco mmendat ion. t he Pla n has mod ified th e a lloca tion of medica l ma nageme nt costs for 20 1) a nd a ll yea rs goiua for wa rd by u l:'in ~ a membe r month basis. which is a verifiable allocut ion basis. AIM , t he a uti sm loading ha s been removed from a ll rati ng... for 20 12 a nd going for w ard . We ackn owledge t ha t t he aud it re s ulted in no OO$t im pact to the FEHBP ra tes. If you haw any furt her questi on s. {pel fre e to contact me a t Manager. Large Group Under» rit ing. at Sincerely, ~~ David Fields Chief Exec ut ive Officer
Audit of the Federal Employees Health Benefits Program Operations at HealthAmerica Pennsylvania, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2012-11-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)