u.s. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE fNSPECTOR GENERAL
OFFICE OF AUDITS
Final Audit Report
Subject:
. Audit of the Federal Employees Health Benetits
Program Operations at Group Health Cooperative
Report No. I C-S4-00-09-048
Date: September 8, 2010
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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washi ngton, OC 2041 5
Office of the
Inspo!(:tor General
AUDIT REPORT
Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
Group Health Cooperative
Contract Number CS 1043 - Plan Code 54
Seattle, Washington
Report No. lC-S4·00-09·048 Date: September 8, 2010
Michael R. Esser
Assistant In'spector General
for Audils
........ w,opm co www .u.aJot\s.go_
UNITED STATES OFFICE OF PERSONNEL MANAG EMENT
Wa;;hinglOn. DC 204 15
Office of the
Inspeclor General
EXECUTIVE SUMMARY
Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
Group Health Cooperative
Contract Number CS 1043 - Plan Code 54
Seattle, Washington
Report No. 1C-54-00-09-048 Date: September 8 , 2010
The Gilice of the Inspector General perfonned an aud it of the F ~d e ral Employees Health Benelits
Prog ram ( FEHBP) operations at Group Heahh Coope rative (Plan). The audit covered contract
years 2006 through 2008 and was conducted at the Plan's office in Seattle, Washington .
This report ques tions $3 7,816,55 9 for defective pricing in contract years 2007 and 2008. The
questioned amount includes $33,122,807 for inappropriate health benefit charges and $4 ,693,752
due the FEHBP for lost investment income. calculated through June 30, 2010. We found that the
FEHBP rates were developed in accordance with the Office of Pe rsonnel Management 's rules
and regulations in 2006.
For contract years 2007 and 200 8, we detennined that the FEHBP 's rates were overstated by
$30.636.448 in 2007 and $2.486,359 in 2008 due to defecti ve pricing. More specifically, the
Plan did not se lect the correct similarly sized subscriber group (SSSG ) for comparison to the
FEHBP and did not apply that SSSG discount appropriately at line 5 of the FEHBP's rates in
2007. Additionally, the Plan did not appropriately apply an SSSG di scoun t in 2008 at line 5 of
Ihe FEHBP 's rall!s.
Consistent with the FEHBP regulations and the contract, the FEHBP is due $4,693 ,752 for lost
investment income, calculated through June 30, 201 0, on the defective pricing tindings . In
w ..... op m. (ov
addition, the contracting officer should recover lost investment income on amounts due for the
period beginning July 1, 2010, until all defective pricing amounts have been returned to the
FEHBP.
II
CONTENTS
Page
EXEClfTIVE SlTMMAR Y ............................................................................................... i
L INTRODUCTION AND BACKGROUND ..................................................................... 1
II. OBJECTIVES, SCOPE, AND METHODOLOGy .......................................................... 3
III. AUDIT FINDINGS AND RECOMMENDA nONS ....................................................... 5
Premium Rates ......................................................... :...................................................... 5
1. Defective Pricing .......................................................................................................... 5
2. Lost Investment Income ...............................................................................................9
3. Claims Review ........................................................................................................... 10
4. Gender-Specific Identifiers ........................................................................................ 11
IV. MAJOR CONTRIBUTORS TO THIS REPORT ........................................................... 12
Exhibit A (Summary of Questioned Costs)
Exhibit B (Defective Pricing Questioned Costs)
Exhibit C (Lost Investment Income)
Appendix (Group Health Cooperative'S May 28,2010, response to the draft report)
I. INTRODUCTION AND BACKGROUND
Introduction
We completed an audit of tbe Federal Employees Health Benefits Program (FEHBP) operations
at Group Health Cooperative (Plan) in Seattle, Washington. The audit covered contract years
2006 through 2008. The audit was conducted pursuant 10 the provisions of Contract CS 1043; 5
U.S.c. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter I, Part 890. The audit was
perfonned by the Office ofPersonnd Management'::; (OPM) Office of the Inspector General
(OIG), as established by the Inspector General Act of 1978, as amended.
Background
The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86-382),
enacted on September 28, 1959. The FEHBP was created to provide health insurance benefits
for federal employees, annuitants, and dependents. The FEHBP is administered by OPM's
Center for Retirement and Insurance Services. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in Chapter I, Part 890 of
Title .5, CFR. Health insurance coverage is provided through contracts with health insurance
carriers who provide service benelits, indemnity benefits, or comprehensive medical services.
Community-rated carriers participating in the FEHBP are subject to various federal , state and
local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction,
many are further subj ect to the Hea lth Maintenance Organization Act of t 973 (Pub lic Law 93
222), as amended (i.e. , many community-rated carriers are federally qualified). In addition,
participation in the FEHBP s ubj~c t s the carriers to the federa l Employees Health Benefits Act
and imp lementing regulations promulgated by OPM.
The.fEHBP should pay a market price rate, FEHBP ContrilctslM.mbers
which is defined as the best rate offered to March 31
either of the two groups closest in size to !lO,OOO
the FEHBP. In contracting with
community-rated carriers, OPM relies on 40.000
carrier compliance with appropriate laws
JO,ooo
and regulations and, consequently. does not
negotiate base rates. OPM negotiations
20,000
relate primari ly to the level of coverage and
other unique features of the FEHBP. fO,OOO
The chart to the right shows the number of o
FEHBP CORlracts and members reported by
the Plan as of March 3 t for each contract
year audited.
The Plan has participated in the FEHBP since 1960 and provides health benefits to FEHBP
members in most of Washington State and Northern Idaho. The last audit conducted by our
office was a full scope audit and covered contract years 2000, 200 I, 2003 and 2005. All matters
related to that audit have been resolved.
The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. A draft report was also provided to the Plan for review and
comment. The Plan's comments were considered in the preparation of this report and are
included, as appropriate, as the Appendix.
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.
Additionallests were perfonned to detennine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.
FEHBP Premiums Paid to Ptan
We conducted this perfonnance audit in
accordance with gene rally accepted government
auditing standards. Those standards require that
we plan and perfonn the audit to obtain
sufficient, appropriate evidence to provide a
reaso~able basis for our findings and conclusions
based on our audit object ives. We believe that
the evidence obtained provides a reasonable basis
for our findings and conclusions based on our
audit objectives.
This performance audit cove red contract years 2006 through 2008. For these contract years, the
FEHBP paid approximately $621.3 million in premiums to the Plan. The premiums paid for
each co ntmct year aud ited afe shown Ull the chart abov..: .
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 nol use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests oflhe Plan's rating system and suc h 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) \\,'ere sel~cted ;
• the rates charged 10 th e FEHBP were the market price rates (i.e., equivalent 10 the best
rate offered to the SSSGs); 3nd
• the loadings to the FEHBP rates were reasonable and equitable.
In conducting the audit, we relied to val)'ing degrees on computer-generated billing , e nroilment,
and claims data pro vided by the Plan. We did not ve rify the rel iabil ity oflhe 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
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 Seattle, Washington, during May 2009.
Additional audit work was completed at our field offices in Cranberry Township, Pennsylvania,
and Jacksonville, Florida.
Methodology
We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was accurate, complete and valid. 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 (FEHBAR), and OPM's Rate Instructions to
Community-Rated Carriers to detennine 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's policies and procedures, interviewed appropriate Plan officials, and
perfonned other auditing procedures necessary to meet ouraudit objectives.
4
m. AUDIT FINJ)[NGS AND RECOMMEN])ATlONS
Premium Rates
1. ndective Pricing $33,122,807
Tile Certificates of Accurate Pricing the Plan signed for conlract years 2007 and 2008 were
defective. In accordance with federal regulations, the FEI-IBP is therefore due a pri ce
adjustment for these years. Application of the defective pricing remedies shows that the
FEHBP is entitled to premium adjustments totaling $33, 122,807 (sec Exhibit A). We fo'und
that the FEHBP rates were developed in accordance with OPM ' s rules and regulations for
contract year 2006.
FEHBAR 1652.215-70 provides that carriers proposing rates to OPM are required to submit a
Certificate of Accurate Pricing certifying that the proposed subscription rale s, subject to
adjustments recognized by OPM , are market price rates. OPM regulations refer to a market
price rate in conjunction with the rates offered to an SSSG. Ifit is found that the FEHBP was
charged higher than a market price (i.e., the best rate offered to an SSSG), a condition of
defecti ve pricing ex ists, requiring a downward adjustment of the FEHBP premiums to the
equivalent market price.
The Phm s.::kc tcd
SSSGs fo r contnlct year
with the se lection o f _ selected
as an SSSG since it was closer and because it met SSSG
requirements.
Our analysis of the rates charged to the SSSGs shows that~ received a ~ percent
di scount. The Plan applied a . percent discount to the FEHBP nltes. T h e _
did not receive a disco unt.
Since OrM require s the FEHBP rates to be at least equivalent to the best rates given to an
SSSG and that the d iscount be applied at line 5, we recalculated the FEHBP mles by applying
the factors, trends, and the ~ercent discount given to _ A compari son or our
audited line 5 rates to the Plan's reconciled line 5 rates shows that the FEHBP was
overcharged $30,636,448 in 2007 (see Exhibit B).
Plan's Commt!ots (St!e Appt!ndix);
I. (a) ~ cannot be an SSSG bccause~ is not a customer group of Group Health
Cooperative (G HC) but is a customer o f Group Health Opti ons, Inc. (GHO), which is a
wholly-owned subsidiary ofGHC
5
(b) Only groups that contract with GHC " the Carrier" are eligible for SSSG consideration.
(c) The Plan asserts that the definition of "Carrier" is the entity contracting with the
FEHBP and does not include the subsidiaries and affiliates of the entity.
11. Even ifllll were a customer group ofGHC, II1II
is comprised of individuals and
groups coming togelher to purchase insurance and qualifies for exclusion as a purchasing
alliance.
1lI. The discount gi ven to an SSSG should be applied only 10 the non-Medicare portion oflhc
FEHBP's rales, which is the per member per month line 1 portion of the rale, before the
Medicare rates are blended in.
IV. _ factors and Irends should not be used in th~ calculation of the FEHBP' s rates;
however, i f _ fac lors and trends are used to re-rate the FEHBP , t h e n _
commission and tax factors s hould be applied to the FEHBP as wel l.
DIG's ReSI)Onse'o the Plan's Comments:
I. (a) GHO does not meet the criteria 10 be a separate line of business. According to Ihe
2007 rate instruction s, "Groups covered under a separate line of business of a carrier that
offers an FEHBP product are excluded from consideration as an SSSG. To be considered a
separate line of bu siness all of the following crileria must be sati sfied :
• It must be a separate organizational unit, such as a divi sion ;
• It must have separate financial accounting with ' books and records that provide
se parate revenue and expense information' ; and
• It must havea separate work force and separate management involved in the
design and rating of the healthcare product."
GHO does not have separate financial accounting with books and records that provide
separate revenue and expense infonnation, nor does it have a separate work force and
separate management involved in the design and rating of the healthcare product.
Therefore, GHO groups are not excluded under the separate line of business criteria
above and can be SSSGs.
(b) Any group that contracts with GHC and its subsidiaries (excluding separate lines of
business as establi shed in the 200 7 Rate Reconciliation Instructions above) can be
sdec ted as an SSSG.
Accordin g to the 2007 rate instructions. "any group wilh which an FEHB carrier enters into
an agreement 10 provide health care services may be an SSSG (includin g government
entities, groups that have multi-year contracts, and group s having point of scrvice products)."
6
Since GHO is nOl a separate line of business (as defined above) from GHC and s ince GHO
provides all of the POS and pro products for GHC, groups under GHO can be selected as
SSSGs.
(c) The interpretation that the tenn "Carrier", as established in Carrier Lener 2005-11,
excludes subsidiaries and affiliates is inacc·urate. The rewording of 'parent company' to
'carrier' and the addition of 'subsidiary' to the first disqualifying point does not negate the
second and third disqualifying points. To be a separate line of business, GHO must have
separate financial accounting with "books and records that provide separ'dte revenue and
expense infonnation," and GHO must have a "separate work force and separate management
involved in the design and rating of the healthcare product."
OPM clearly establi shes that !ill three di squalifying poi nts must be met to exclude an cntity
(including separate and distinct legal entities) and their contracted groups from SSSG
qualification. As discussed above, GHO does not meet the qualifications to be considered a
separate line of business. Therefore, l1li and all other GHO groups, if meeting the SSSG
criteria, can be selected as SSSGs.
IT. l1li is a purchasing alliance made up of groups only (not individuals) and does not meet
OPM's qualification to be excluded from SSSG consideration as a purchasing alliance.
According to the 2007 rate instructions, "Purchasing Alliances are any groups bonding
together to purchase health insurance. Purchasing Alliances are considered employee
groups and may be SSSGs." The rate instructions furthe r state that, "Exceptions to the
general rule (and the following groups must be excluded from SSSG consideration) .. . (9)
A purchasing alliance (as defined above) in which every employer in the alliance has less
thall 100 enro llees."
l1li meets the 'Purchasing Alliance' definition. Lt is uncl ear what information the Plan
used to state that this purchasing alliance included individual enrollees. However, our
review of the Plan 's supporting enrollment report showed was made up of
. Each of the three alliance
have 100 enrollees
under the purchasing
III . As stated in the 2007 Proposal Instructions, "unless OPM agrees in \\!fiting, all discounts
must be applied at line 5." We recognize that there should be consistency related to the
application of discounts from SSSGs. Si nce the FEHBP's rate includes a blend of no 1)
Medicare and Medicare enrollees, it is our practice to blend SSSG non-Medicare and
Medicare rates to determine the overall discount. We then apply that blended discount to
the FEHBP rates.
Furthermore, past proposal and reconciliation instructions clearl y state that all discounts
should be applied to the FEHBP line 5 rates. There was not a written agreement between
OPM a nd GHC stating that SSSG discounts could be applied using a different
7
methodology. Therefore. the discount given to~ in 2007 will be applied to the
FEHBP line 5 ["'dtes.
IV. It is our practice to use the discounted SSSG's factors and trends in the FEHBP rate
development to determine the true amount of a given discount. However, this practice
does not supersede 5 U.S.C 8909(f)(J), which prohibits the imposition of taxes, fees, or
other monelary payment, directly or indirectly, on FEHBP premiums by any State, the
District of Columbia, or the Commonwealth of Puerto Rico, or by any political subdivbion
or other governmental authority of those entities. Based on this statute , the FEHBP rate
cannot include _ tax charges.
Furthermore. broker fees are specifically disallowed under 48 C.f.R. 1631.205-75(a)
which statt!s, "to eliminate from allowable costs those costs related to sales promotion
and the payment of sales commissions fees or salanes to employees or outside
commercial or selling agencies for enrolling Federal subscribers in a particular FEHB
plan." Based on this statute, the FEHBP rates cannot include_ broker fees.
a.
We agree with the Plan' s selection SSSGs for
contract year 2008. Our analys is of the rates charged to the SSSGs shows that
received percent discount, which was not applied to the FEHBP. The
did not receive a discount.
the Plan did not disclose a discount to OPM at the time of the FEHBP
rec,onci l,,",on. L.urlng our review, we IQund that the enrol lment used to determine the current
month (PMPM) calculation was overstated for subgroup
99 contracts. When the i contracts were removed, the
was reduced t o _, resulting in a greater renewal rate action.
received a~percent discount due to this error.
Since OPM requires the FEHBP rates to be at least equivalent to the best rates offered to an
SSSG , we recalculated the FEHBP rates by applying the factors, trends, and t h e . percent
discount given to A comparison of our audited line 5 rates to the Plan's
reconciled line 5 rates the FEHBP was overcharged $2,486,359 in 2008 (see
Exhibil B).
l'lan's Comments (See Appendix):
I. The Plan agrees that an unintentional numerical error resulted in a discount for~
_ ho\.. . t!ver, the Plan does not agree that said discount should be applied to the
FEHBP line 5 rates. Instead, the Plan believes that the discount should be applied to the
FEHBP's non-Medicare PMI'M rate, which is the line 1 rate before Medicare is blended
in the rate.
8
II. The Plan asserts that the DIG auditors did not use GHC's benefit adjustment
methodology to adjust both the and FEHBP benefits from the 2006
experience period to the 2008 cor""""
OIG's Response to the Plan's Comments:
I. As stated in the 2008 Proposal Instructions, "unless aPM agrees in writing, all discounts
must be applied at line 5." We recognize that there should be consistency related to the
application of discounts from SSSGs. Since the FEHBP 's rate includes a ble nd of non
Medicare and Medicare enrollees, it is our practice to blend SSSG non-Medicare and
Medicare rates to determine the overall discount. We then apply that blended discount to
the FEHB? rates.
Furthermore, past proposal and reconciliation instructions clearly state that all discounts
should be applied to the FEHBP line 5 rates. There was not a written agreement between
OPM and GHC stating that SSSG discounts could be using a different
methodology. Therefore, the discount given in 2008 will be applied to
the FEHBP line 5 rates .
II. The benefit c hange factors were consistently developed
and our audited analysis resulted in the same benefit change fael.ors
developed by
the Plan.
Recommendation 1
We recomme nd that the contracting officer require the Plan to return $33 , ' 22 ,807 to the
FEHBP for defective pricing in contract years 2007 and 2008 .
2. Lost Investment Income $4,693,752
In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
FE HBP is entitled to recover lost investment income on the defective pricing findings due the
FEHBP in contract years 2007 and 2008. We detennined that the FEHBP is due $4,693,752
for lost investment income, calculated through June 30, 2010 (see Exhibit C). In addition, the
FEHBP is entitled to los t investment income for the period beginning July 1, 2010, until all
defective pricing finding amounts have been retumed to the FEHBP.
FEHBAR 1652.2 15-70 provides that, if any rate established in connection with the FEHUP
contract was increased because the carrier furni shed cost or pricing data that were not
complete, accurate, or current as certified in its Cenificate of Accurate Pricing. the rate shall
be reduced by the amount of the overcharge caused by the defective data. In addition, when
the rates are reduced due to defec tive pricing, the regulation state~ that the government is
entitled to a refund and simple interest on the amount ofthe overcharge from the dale the
overcharge was paid to the carrier until the overcharge is liquidated.
<)
Our calculation of lost investment income is based on the United States Department of the
Treasury's semiannual cost of capital rates.
Plan's Comments (See Appendix):
The lost investment income calculation must be based on the amounts ultimately due the
FEHBP.
~iG's Response to tbe Plan's Comments:
We agree and our calculation of lost investment income is based on the amounts due the
FEHBP.
Recommendation 2
We recommend that the contracting officer require the Plan to return $4,693,752 to the
FEHBP for lost investment income for the period January 1,2007 through June 30, 2010. In
addition, we recommend that the contracting officer recover lost investment income on
amounts due for the period beginning July 1, 2010, until all defective pricing amounts have
been returned to the FEHB P.
3. Claims Review
Non-Covered Abortion-Related Claims
The Plan used FEHBP claims experience from calendar years 2005 and 2006 to develop
premium rates for contract years 2007 and 2008. We found that from January 1,2005 through
December 31, 2006, the Plan paid 18 abortion-related claims for FEHBP members that should
not have been paid, or the supporting documentation was not adequate to justify the claim
payment.
Beginning January 1, 1996, Public Law 104-52 requires that FEHBP plans not be permitted to
payor provide benefits for an abortion except, "where the life of the mother would be
endangered if the fetus were carried to term, or that the pregnancy is the result of an act of
rape or incest."
The Plan's claim processing and information systems did not have adequate controls in place
to detect, document and deny payment for non-covered abortion-related claims. Failure to
adjudicate abortion-related claims correctly increases the risk that the Plan will pay for non
covered services and inflate the FEHBP premiums.
Plan's Comments (See Appendix):
The Plan agrees that it paid 18 abortion-related claims for the FEHBP that should not have
been paid or for which the supporting documentation was not adequate to justify the claim
10
payment. The Plan will create and implement policies and procedures documenting these
internal controls and accountabilities. To confirm the effectiveness of these measures, the
Plan will perform an audit and the outcomes will be documented and reviewed six-months
after the submission of this response.
DIG's Response to the Plan's Comments:
We acknowledge the Plan's proposed corrective action and will evaluate its effectiveness
during our next audit of the Plan.
Recommendation 3
We recommend that the contracting officer require the plan to submit the results of its internal
audit to our office by December 31,2010.
4. Gender-Specific Identifiers
The Plan did not comply with FEHBP Carrier Letter 2007-09 (CL 2007-09), Attachment I
related to gender-specific identifiers in its claim data submission. CL 2007-09 requires
certain plans to submit its FEHBP claims data to the 0[0 arumally. Attachment 1 further
explains the specific data field requirements that plans are to follow.
The Plan's claim data submission to the 010 in 2007 (to support the 2008 rates) was
incomplete because it did not include gender-specific identifiers in the data fields. Failure to
comply with CL 2007-09 restricts our ability to meet the audit objecti\;e and increases the risk
that payment for non-covered services will remain undetected.
Plan's Comments (See Appendix):
The Plan agrees that the claims data it submitted did not include gender-specific identifiers in
the data fields. In response, this field will be included in the program used to create the
FEHBP data.
DIG's Response to the Plan's Comments:
We acknowledge the Plan's agreement and will verify that the Plan's next claim data
submission to the 010 contains gender-specific identifiers.
Recommendation 4
We recommend that the contracting officer remind the Plan to ensure that future claim data
submissions contai n all of the required fields.
II
IV. MAJOR CONTRIBUTORS TO THIS REPORT
CommuDity-Rated Audits Group
Auditor-tn-Charge
Staff Auditor
Staff Auditor
Staff Auditor
_ • . Staff Auditor
Chief
Senior Tcam Leader
12
Exhibit A
Group Health Cooperative
Summary of Questioned Costs
Defective Pricing Questioned Costs:
Contract Year 2007 $30,636,448
Contract Year 2008 $2,486,359
Total Defective Pricing Questioned Costs $33,122,807
Lost Investment Income $4,693,752
Total Questioned Costs $37,816.559
Croup Health Cooperative
Derective Pricing Questioned Costs
2007 ConirOtI \ 'tar - High Opl;on
Plan's R~on~ ilcd Rales
Audiled R~es
- -
Iliwceld)' Overcharge
To A nnu~J ize:
x Ml\Jch 3 1, 2007 Ik3doou nt
x I'a}' Periods
l!i
Subtolal
TOOt! 2007 High Option DcflXli."e Pricing Qucstioned COSH
" SJO,Jl2.090
2007 CUnlrae! \ ' tar - Standard Op!ioo
Plan's Reconciled Rafes
Audited Rates
Oi.."c41r O.'ercliargc
To An nualize;
•" •"
-
x Milich J I, 2007 Hcadcoun l
x ray Periods
Sublol~
TOIaJ 200? SllIIldard Opllon Dele-Clive !'ricin!,! Qucsliuncd COSIS S.'i14.JSII
TOIII1007 Ttllal DereCI;vt Pricing Quulioned Cosls
llMl8 Cllnlnocl \' .... , - ltigh Opl;OI>
I'lan 's
R~concikd Ibles
Audited Rales
- -
Oiwcd:I)' O."e<cha.-g.:
To Allnlla li ze:
x March J I, 2008 Hcadcounl
x I'ar I'eriods
Su blolal
lOl al 2008 HII:h Oplion Defeclh"c Pricin g QU e5t lonoo Cosls
16
"
Sl,JJ7,S07
2008 Con lra~1 \'ur - Siandard Oplioll
Plan's Reconcited Rates
Audited Rales
Ri .."('Ck l ~ O.'ercharj!c
•"
To Annuali ze:
•"
- -
x M:.rch 3\. 20OS lleadcoo"1
K Paj' l'criod!;
Subtotal
T0I aI2()08 StanJ~rd Oplion [kfo:ct i, e "rici ng QUc sl ioll.:d ' '''h
H.486J.'i9
Tnul Dr rHlin Pricing Outslionrd COSI~ SJl,I22,SO?
Exhibit C
Group Health Cooperative
Lost Investment Income
Year 2007 2008 2009 2010 Total
Audit Findings:
Defective Pricing $30,636,448 $2,486,359 $0 $0 $33,122,807
Totals (per year); $30,636,448 $2,486,359 $0 $0 $33,122,807
Cumulative Totals: $30,636,448 $33,122,807 $33,122,807 $33,122,807 $33,122,807
Average Annu<llInterest Rate; 5.5000% 4.9375% 5.2500% 3.2500%
Interest on Prior Years Findings: $0 $1,512,675 $1,738,947 $538,246 $3,789,868
Current Years Interest: $842,502 $61,382 $0 $0 $903,884
Total Cumulative Interest $842,502 $ I ,574,057 $1,738,947 $538,246 I $4,693,752
Through June 30, 20 10
Al'pcndix
GroupHealth . Group Health Cooperative
320 W,~s t lake Ave nue N. SVlle 100
S(> a!ll c WA 98 109
w wvv gt l C 019
--
C h lc l . ( : ~ H l llmJIIII ~ · 1{;1\,:d A udi ts ti fl lli P
Uni ted Sla les Orti t.:(> , ) r p .: r soll n ~ 1
OOi c(: o f til l: [11:)1'':'::1 \11' (iL'll e raJ
t'd (J Il i.\~e lll":I\1
(1)00 F SlrL'cl. N W
RO ll lll (i.:lOO
\\ a.-;l lI llg 1UIl . D { ' ~ U -II ~- I IOI)
He: Gruuflilcalth CIHIIH: rali\ 'c
O."aft Audit H(,[HU"' N.I. I C -:i.:l -OU-09-U-tX
Ikar _ '
( jruupl ka lrll ( '(1<IIIC r <1l l\ ,.: , " (i l H ''') SlIhll l ih Ihis r":s[,o ll "'- I II 'h,"I l l f l\' l' <11
i. llS P,X; t.Jf lj": llcral. U lli e"': o i" Aud iJS. U nt Il Report No_ IC - 54 -IHI"lllJ-II-1 X. d:I(.,: d ,v[;lrcil
10l U i- -L> r(lli l~o..: p 'lf l") o n Ih...: [' c<.kra l b ll [lloy..::.:s I-I .:alth O<': III..'lil ::; l ' rug r~ul l l" II ' III ~ I " ' 1
o pc ra liulI) ~Il ( jilt ' 1( 1(" CO lll ra'.: l Y<:Jrs ~ O O(, l1truugh 2 00~ '111<.' I )rtl n K q )\ Ir! Ul<.: lud..::-;
prL'l i l\l ill ,n ~ " ILlldili gs \.l rd dCL" l ih : prici ng ill co rll ra Cf y..: ars 20 (1 7 ilnd ~ O()~ . :lI llj a
prel i III i nar ~ n.'W IlUlll.' llda t k il l liral ( j II ( rdurn ~ ·U . I .. :;. I 7lJ to Ih.;: I· Lilli J' . <..' _\ (' I thl \ <: () r
lu:> t 11I \l.:sll11<:111 IlKll ll K .
As d I SC ll ,,~cd hdm\ . 1. 11(" Ji s;r grl.:cs \\ il h the D r;)tI R o.: jl o rr ·~ I l lh: ll n g ~ :111(1
recommendaltOll regard ing ddcCl1\·c pfl c ing fo r contract year 100 7" 'Ih ,: [ }r;Jf\ Re po rt ' s
fiod ing is nOf 5UPPOftCJ by law or OPM instrucfio n s. GHC ,'lCkJ hI \\ lL'd g.:.'" tk tl a ll
:ldju:; tllll.: lI t i:-; du..: the FUln!' rd a ll.:d tt! con tract year 200 8. [HII ll isa ~ ~ n"'..: :-; \\ ilh Ihe
a moun t assert.;:,1 in tit.: Ur;Jn l{ep!'III -;'; Ji n, lin gs .
I. l'rcnriulII Rate- nl'\'icn
.\. ( ' ''"ILld \ ('a'" 1011 7
Tire.: Dra!"t R..:purl tihag:r..:..:,> \\1111 ( il l... "s so.:!.:d iull u t" th<: s ll !Il lad ; s l/l.:ll .,>uhslTii>..:r
SSli s'" ) for 2/ltJ7_ '1'11<: Ut an R e p o rl a '>Sl..'r ts liwi {d ll ' " ho u l.! Ir ~ !\ <.: "..:i<:..: I..:d
1• • • •1 a" " IL": (11' 1\\ " SSS ( j " sin..:,; 11 \\ "IS
111":1.:1:-; I h l.' SS S( I cnlcr ld 1\,1'><.. ,1 ,llltir,: ulL llg , 0[
~'·b·,·,lIIs.~
I' : l ~': _~ ,.1 1(,
l1li. Il l<' r )r:.n I{..: pm l ;l ll<.!g~s Ih;.I 1(iflC cl1gag..:d ill d..:ktl l\ l'l'ri..:i ng ~lll d Il1a l l l ll':
H .:: II I ~ I' b cU ll 1led kl an : ldju s llH CII ( () r S.. 7,7 1O.(d19 _ ..: ..... ...:ttl,,! \..: ( I r lo ~ 1 i ll \ ...· S{II 10,' 111 j n C(lllh : .
(i lI C d i s;l gr<.:l'S \\ll lllhe D ra fL Report "s prd llllll1i.l r~ liud in g I k l l _ 1I 1.:.:I S I h,:
SSSG ni ll' ri a . ~ dol'S lIo t quali(v as all SSSG lor 1\\ 0 rl~ a SO Il S . The first reaso Ji Ih a l
_ I S [hll all dl g ib lc f!-roup fo r SSSli purposes IS that ~ i s n o [ .a cU$l o m c r g nJUp of
G i ll.' . _ is <I ,,: us wllwr grou p o!" ([wup lI .:a llll Uptions. illc . ~ · - G I IO . [NC. "), ;I
II hoi I.' -u\\ t h:d s ult s idiar ~ 0 r Glf e. 0£";' O r g d ll izil l lonal U larl . ;IIt 'Jdl ..:d III': rLlu ;J S F.\ II i b i I
A . S<:i.: al 'i!.! (intu!' Conlr<J ds hd wCL'n (11-10, INC. ;Hld _ ilH,:to..:hed h..:rc lO as f:>; lIi ult
U . Si n..:..: l1li is nu l a CuSlOllH: r grOtl! ) (/rl l l <~ F E III~I' ...: ar ri~ r (/ IIC' _~ C<lIUIU I 11..: ;111
SSS( j 1 11l . ll~r (j IIC' ~ C< 1111 rde l w i I h I IIL' ()nic., "r l ' n ' I IIH1l'1 ;\ Li n :1~~ ...'II I.: nl l "() I' \ j " )
(II fe' s inaJ\ t.: rI..::nL inc lusil.l ll of ~ in (,H e' s 200 7 1'~'lc proposal do cs [101 chan g(! Ih ..:
Lac t llia l ~ is nlil a n el igible g ro up for SS SG p1lrposes ,
IS 110 1 ; In SSSCi I:; Il lal , ": \ ":11 ir~ \\cn; a
C US h1[lI C I !! HJu[l o ((jII C is C()lll pri s cJ ,I f lll d i \ Id ll , il " ,lIId ~ r'l llp s c otll i l l~! tug": II1'::1
I n p Ul"c h ;t '>l: lIISlIr'mc..: 111..: rc f r ~ do.:s lIot q ll ;ll lf~ ,IS ;t plln; ha~ iH g :ll li;lIlC": . b ;I ..;",d
0 1.1 () I' ;'".j gli idalK L", an d IS 1101 eli g ihk til he :l ll SSS< i _
I. (lilly Groups Ihal Cunt.-acl wilh (;11(: Arc Elig.i"ll~ fur SSS(;
C onsideration
OI't...I 's ralill g re qu irclIl ..:nts fu r tlw FEIIBP , ilH:l u(lill g IIISlrU( lioliS ]1)1' ide lll l {~i l' g
III...' SSS (i ~ , :11 -, ' : " HL' l lh.: , t ll ~ thL" t TIl II \('1 IIll' [TIII\ \ -'; 'I" hlli"ll l{ l ' "~' I I I ;ll i " lI
(" ' F I,: 11n..\ H " L ( )I ' t'vl ' " Standard ('onl r:II': I I~)I' CUl lllllI lU i l~ -Rated I-I Cd I I II j\,b i 11lCll:lllCl:
()rganl l:illlll ll C arri i.!r s ~th e "S tanua rd Co ntract ") a nd O ll \ l 's alllllwl r,Jll' 11IsIrucl io lh
Ihe F IJ I II :\ I{ Jo.; lin..:, th..: SSSGs as (o ll, )\\ s:
(;.1) Si mi la rl y Sib:d subs<.:rib.. : r ~ fOUp S (SSS(i-s) arc a c o mpr;.;h"': ll sl\ 0.;
ul l:di cil l piau o.: " rr icr's l\\ o e lll p lo n~ r gro ups , hat : ( I ) As o l"lh o: da,o.;
:;pl:ci! ied l>y OI'M loth.: ra t.: ill s lruo.:tiulI:; , 11 ;.1\0..' a ~ u h so.: r i kr e nro ilm o.: 111
c loscsllo Ihe FEI-HlP subscri ber enro ll ment : and, {2 ) USl: an y ratin b
rlIdhoJ otil o than rClros p ect i\-l: cxp;';" ic llcC .-ating: anu , 0) tviee l th.:::
Lrite ri a spcufi ...d iOl lle ral..: inslrucliu ns issu..:d b ~ O l'i\'('
(b ) :\1!~_g ru u Jl wi th which a ll 1-'E1 1U1' o.:arrio.:r c uters 11110 a ll a ~reo;m e lll
1(1 pw\'we h..:alt h c a re Sf J'\' i ces i" <l P ' ) 1": ~I~.ia I 5SS G ( inc luding. separ;lI <.'
l il Ies , If bus! lie" ,>, ?,I )\-e rn [lleu t ell l illCS, ~ r, III liS tllal ha \ <.' IJIIIIII \ c; ! ["
C,'ll ll,ICb, .tIIJ g illu ib 11.. \ IllS 1I, I IIII - ll l -'> ": I \ IL( 11I " dud .,)
( el 1':,\CO: l'li " I1':> to Ih..: geJl.: rJ I w I.: stil kJ III p ,;r" I ~ r; l pl l (II) ~,rl I Il S see l lU l1
ill'o.: (and Ihe li..dl \I \\i ng ~ro up :) IJl USt II": ":Xd lld.:J (roll l SSS<j
cl ,ns id<.:r;II II IIl ): ( I ) (ili lUpS Ille Llnl er r;ll~~ "; Il~ 11 ,(' Ill dhild of
I"l'l n 1:;1', :(: 1i \~ o.:x pl'fiello.: c ra t i fi g: \ 2 I ( i rll u p " ":~ '[1 sis t i Il l!. II r lilo.: carri.:r':->
---
Ma~
Pag..:
2:-).20 I ()
_~ of [ (i
O\\ ll l' mploycc.., ; (3) Mcdll,;;,id gro ups. ~ t ,,-~ d l(:ar.:: g roups . :md t'-l"l'U P:-:
thai ha\ "e onl y a siano aloll": benelil (slIc h:J" denl;,1 n nl y J. ;IIlJ ( -II A
purc has in g alliance \\hose ralc -setting is mandated by Ihe S til te ( Ir
loca l govwnmenL
(d) OPM. sha ll dete rm ine the FEHUP rate b~ sdcc ling the kHl ef o l."'h.o:
two ratcs dcriycd b~ us ing ratin g m.-: thods con si~ l e lll
wil h those lI sed
to Jeri,'c lhe SSSG ra ies.
'18 C .F R ~ 160 2. 170 · [ 3 (emphasIs adJcd 1
Unde r OPM 's rcgul<ltio ns fo r th l" FEHIJP. lhe SSSGs a rc the "carner" s " ( Wo
gro ups_ The ,-crill "c arrier" is dell ned ill tllL' Fr-;:HB .-'\cl as I(lilows'
" ,ClarYi..:r" llIeans a \ 'o llJlIlar~ 'lssoc iali o n, corpo ra li ol!. ri.IIIIlCrship. I.) f
olher Ilo llgm -c rnm c lllal org.;lIli /;) tioll \\ hicl t i ~J~"~·~Jill~ _" "::!.lg!).g..,:tJ.\ 1l
jHO\"id ilw . navi n!.! fbr , or re imbursing the cos t o r heal th s<:r \"i~~ Llllder
group ins urance polici es o r cO lltract s, medi ca l or hospi ta l SC I \ iLl:
ag rcemc nts. mcmbe rship o r s u bsc riptio n cont racts . llr :-; ill li[ar g. ro up
arrangemenls. in cotlsilie raLion 0 rmcm iUlllS or oth er period ie ch:lfgc.<.,
fl:avabl e Lo th e carri er. inc ludin g. :l he:llth bClh.'fits pl'lIl Ju h s llolIson:cl
or underwrillc n by an em p loyee organi u lli o n and an asso c ia ti on o r
o rgallizatiolls or (llhe r l:l1tilies desc ribed in th is raragmph 'jjl(1Ilsorillg a
1 1,: ~llt h h...·llcfih pLlI lll
5 U S .c. S 890 I (7 ) (emphasis added) . Sc.'!. al so -'8 c.r.R. § 160 2. I 70 - 1.
The dc/i ui t ion of ca rri .... .- in th e S ta ndard CQlltr<Jct incorporate s I h ~' S l atu!Or~
dcli nilioll ~Hl d /ilnhc r pro vid es thaI the term " II1 <I~ he u st.'d i nlLTcha ll g<:.' ab l ~ \\ itll the krill
Cont rac luL·' See Standa rd COlltrJd at § 1. 1
I' iwll l) , tl1 .... lc rm -"lh:al th he.:llcli l:-; plall ,·· \\hi d l is use.:J ill till: ..k["ulitwn or Lilrn..:r.
is defined 3S follows:
I k<.tlth hc.: lli.: fi ts pia" lIle.:a li S ~I g rot! p i IlSUrarKe Jlo Iil.:~ . ,,:olllr:1LI. Ill..:u ica l
o r hO<;I' I1 :11 "e rvie.:e <1 \-'.n:cIl H'IlI . 11IClIlher<; 1I ip <lr ,\1111 ,> ..: ripl in II .."(lilt L Id . or
sinHl:Jr g rollp arrall gc lllelllS provided bv a ca rrier !"o r the pu rpose ,J!
pro\·idi ng. amlllg i IIg for . deli \ e.:ri ng,. fla yi ng ft.)r, or n:i lllhul"-; ing ~ln~· of
Ihe.: cO .~b o j" h..:al lh 01 1'''' ~..: n ice s
4 :-5 C J "R" § j 602. \ 70 ·9 ~ clllpha.-;is added L
Il a s ~:d 0 11111.." I(x t.'.gtl illg dt.'! il1i l((l Il ~ . Ill.: te rlll ··C:WI..-r " ;1-; lh ..'d ill I h I.! .il.' lilli lwll " r
SSS(, s 1"<:: krs Ii! Ih.: k gal <': lIlil :-" 111 .11 ..::o nll ;Kh \\ il lt ()I ' ~\I LII (, I·ln a " ,-·.ll tll h': l1diLs pl. 1I1
Page: ·1 of 16
under I h~ F E 1·1U I' " I IlL' ddi IHlim, o f c~rrii.'r d() c~ 1101 !Ocilla\: s ubsi d I;II'I ... S (If. )Ihn
cOqNrah.: aflilial<:$ ur lh\.' carrier.
OPl'v(" s ra ling IIlSlruCiions regard in g SSSGs are consi stc lli \"'ith (he ddilillions
discussed above . This con sislenl approach is highlig lHcd by rC\'is ion s OPi\·l made 10 ils
rate ins truc tions regardin g the circums tan ces under which groups co \"crcd und i:r a
separate I; ne of hus i IIC SS o f a carrier Ihat ofTers all FEI-I B P produc t call be exe! uded fro III
SSSG cons idera lion . Spcci li c(l ll y, III 200 ). opr,,1 rn)pl)s~~d I';' , k'I;Il,';1 SCpar:lk lillc o f
business as 1{.Illu\\ s:
(irmlp s c()\c r..:d under a s('pa r ~ll \' li lle \ I f hllsines s ,) f:1 p:IITIII
compau\' thai offers an F EHBP product <1r.e excluded from
co nsideration as an SSSG . To be considered a se parate line of
busi!!..:ss all of the following criteria must be salls licd:
• It mUSI be a scpar;He organ ization;11 ullit. $'I.:h as a di\ is tOIl or
~ubsid;an· .
• 11 111 " -; ' h :l \ l' sql..lrall" fi nil llc i:d ,K ( I 'lIll1 : ! "il ll~ \\i ll, " h, ,, )k ~; lI\ l !
I'c(:l lrd s Ilw I pnl\"idc s<~p ;lratc re\'CIl IiC and ,: Xjl<:lISC rn ti'm llilt itJ ll !h:1I is
used to r int ernal planning and contro l.
• It Inust ha\"(: a se parate work Coree and ~eparilt .: m i'lIIa ge llle llt
imo" "cd in Ih<-" des ign al[(I ra ting oflh..: ileal t li<.: ar( produCi
See OPM Id k r dat ed Fe brunry 23, 200 5 Oltwc hcd hc ri..·l o as F\ hibil C
II I response 10 cn lTl11ll~ nt s thaI OI'M' s n sc o r th ... krtll ;'; " pa re nl ronl p:ut y" ;1111 1
"s ubs idiary" wo uld cause (:onfu5ioll regarding whelher gro ups Ihal :Ire 1101 clls to mers o f
th..: carri.:!" co uld be consi dered SSSG s, OPM modi6cd tile: klllf'-llagc, c han g ing " pan: nl
CO mp;1rI ~" III "(;;trrier" and del c le:d the \\nrd '·5ub:; id i'\f\ ··· .' Src ([li(;all ~. ort\ / Iloh;d
Soml~ of Ihe c a rrjcr~ had problems \~'ilh the te rm " parent company"
sill\:c Ihey thoug ht this implied groups co uld be SSSG s c\'c n tho ug h a
k g," l: lI tn y u th<-'f thall the FEHBI' l:arri c r pru \ Id es th\! co \"(:r:Jgc . Thl!)
said the use o r the \-vords " parelll company" and "subsidiary" crea les
confus io n aLout intc nt o Cthc proposed po licy.
One re ~ pond~1l1 said the \\'o r(\ " :; uh s id i: l[\'" J1r'-';-;': II I~ d a prn hk nl
bccause it typically rclers to a se pawtc and di stinct kgal e n l it ~, Tltey
s.lid lhe wo rdin g would c reat e uncc-rlainty ahout \\ hC lh~r gwups \l"tlll
ar~: lIot cllstolllers (If Ille eani ~T c(l lIl<I in $0111.: ; 1l ", 1 : " KC~ h.: n lt b l. kred
:):-':--'u :- , I hc) \lrtl l h.bc iH ll cllJmg til..: 1 :J ll g ll'I~C h ~ o,;lt.II' ~ lII g . P,\l CIit
C Ullljl; ll l~ "to "carri..:-r" · :llld striking (lut lite \\ord · ·s llhs i d i ; lr~· .
May 2tL ~(J III
Page 5 o r 16
Om:: \:arricr said thdt o ur desc ri p tio n appears 10 encompass a carri,:r's
$I"tc r corpo rations " hich me sqmratl' Icga l e ntiti l'S and . pO I<: nti a l l~ .
nol co ntr<lcled with OPM a s appro\'ed carriers. T hey do no t behe\'t~ it
IS the il1le nllo cro ss illto separa te' \cgal entilies cn::11 be twee n
co m monly owned corporat io ns 10 selcct pOlen li a l SSSGs .
We agree to change " I)arent Company" to "Carrie r ' and st rike O UI Ihe
word "s llb s id i ar~ . "
Sc ~ O I' M Carrier LC II ..:r No. 2005- 11 attached heret o as L.\hibil L
OPM 's revisio ns in response to cOlllm ents demollS tra tc Ihe agency's clear inl el1t
to exc lude from consideration as a n SSSG t hose g roups thaI arc no l c ustome rs of the
carrier Ihat conlracts with OI)M . The clarified instructions remain to address situa tio ns
v..'here a group c USlome r ora separale line o f busi nc:,;s. opa<lled as a di v isioll \~'- i thin a
singlLcjl!Iler. cou ld hr: excl ud ed from SSSG d ig ib ility, T hey do 11\)( s..:e k to expand lil,:
cont rac tual aud regu latory de lln itiol l ofSSSGs . Th.:: insl ruc lio us m ake cI'::M tll,,1 a
d dL'rn lilliltio u as to whether a progra m is (I separa le line O r bUSl ll CSS is Illlldo.: : 15 ",j th
respec t 10 the o pe ratio ns "o f a carrier. "
T lh.: r..::l"o l''':: . th..: ··,..: parat..: li ne (I rh Ll S illc '.~ " ill " l nh.; lI ~ lIl L~Ill!h)1 h..:: al'p ll.:d Il' : l
subsid ian "r lh..: carrier thai co ntra..::Ls with OPI\.·1. rh.;; filc tlhatlile carri e r that COUlracts
"il h Ol'ivf also) P Cril)flI1S administrati ve sen ices l'or til..: s uhsiJ i :Jr~ dues no t neah: iJ
difr~~r\.-'Illll·-';lli l T ho.: IllU \ is iull ufad m inistrall \''': so.: n i ce.~ hy;l t: " lj ldLII "~ lu n:I!! 1', 1 .11 1
a ffi liate i~ n~ ry COlli lOo n in the health plan and other indu slr ies. Suc h arran gc lnell ts J o
not affect the legal se para leness of lho.: relatcd parli es.
na-.;c d Oil Ilk' lorel:!.o
- ltll'.. OPt>.'! Iccop nl l<:S lhat (he carrier \\]'(11 "hidl It clIllt r:JCh
~ ~-,
unde r the F F::I·IIlP and the c<l rri er's afti li alc(s J arc se para le legal enl ities a nd o llj~· gro up
c usto mers of the fEHBP ca rrier arc eli g ihle for S~SG considerati o n. Thus, con lrary to
Ihe Drafl Re port 's preLinlinary find ing, l1li
canno t be al l SSSG s ince it d ocs not
\.-·o ntral·t with Gl lt...: fu r heal th bcndits ..:o\"cra~c,
2. Group lIealfh Coo[lcnllin and Croup ([eahh OltliOlls Inc. A,·c
SC [laJ'alc :Iud ()islincf Lega l Enlities
GHC li nd GI-IO, IN C. are separate lind distmci lega l enti ties. GHC was /orrneJ III
I(H S, II is J Washingto n Ilo llprofil.laX-CXcm pl o rgan iz.ati(l il. G II C has bee n registered
w ith lile Wil shill g. tOIi S late Ofli cc: \)r lhe In sur:I[H:,: Cnlllllli ssi llll<.: r (-'Ole "') as it IIC<l ll h
IIMlIlt t.: ll ~lI lCe I II !t<llIl UI iUII SlIlee 1'1 76. :So.:..; (H e Cert JlI (.;lIo.: 0 1 l(o.:gls lr:JIIOII a uadwd
herell) as Ls.h ibit F. Ci II C 's 101al ..:nro l I111":1 II ~l S vI" April 2('10 IS a p proxilll<lId ~ :i7S,()l)(}
It ha " contractcJ wi th O P M as ,HI FE IIB I' cO nlnlCIOr since 198 5.
(illO. INC \\ :IS 1 (ln ' h~,ll ll 1991J. It i:-. cl \\ as l llll g ltlll fn f -prll ril t.:u r pnrali(lll (oJ 1(1 ,
INC Iw s he':fI rc ~ i s l ~ red wilh Ihl' ore ;1 " iI hea llh Cilrl' ser\i cG n ll llr;h: lor si nce 1il'HI -"co.:
,
Pagl! G of Hi
o l e Ccrlili catc of Rcg ls trLltio l1 a uac hcd h c rc h l a5 I~x h ih ll G GHO. INC \\ as es tah lis hed
pri ma r il: In o ffe r hcalth p la n proJw.: ts. s m: h :l S p(l irll -(l f-sc n 'tce bCIIl.: fib , tha t \\ <.) lI ld be
incons istent \\"jlh CiHe s registratio n a'> a health ma intenance o rganizat io n . G HO ,INC: s
to ta l CllJoUrncnl as of April 201 0 is 22 8.000. - G I-fO. INC. is no t an FEHUI' conl racloL
As separately registered carriers. G HC and G I-I O. INC. arc each suhj ec t to
separa te cha pte rs o f the WashinglO n S Lale Insurallce Cod e. G I-I C is prima ri Iy go \'c ru ed
by RC W C h. ,-'I R.4 G a nd G fI O . [NC. is pr imar i ly gC)\'e rncd lly.ltC V: C h. - l X ~ 4 _ Each
e ntity SUb/III IS all nco..:essary tilillgS wi ll I theOrC. Eac h e ntity is a lso a ppro p r i a t eJ~
capita lil:cd in accordance \\ ilh Was hin gto n S ta te ins uran ce law .
I'u rs ua nt to a n Ad lll in istrati\ t! Se r vices A g recll le nC G HC pe rform s ad minis lrali\'e
[ullc lio ns fo r G HO , INC. , includi ng c laim s proce ss ing , underwriling. a nd ap peals. There
is a lso a Medical Ser.... ice Ag ree menl bel ween GHO, INC and GHC thro ug h whic h (IIIC
pro \'ides med ical :)cf\·iccs 10 GHO , fNC. e nro llees . Bo lh agrec men ts an:.' fi l(.'d wit h ti lC
O le a rid pro .... ide Ihat G I Ie is cOln pe n.'><llcd for a ll aC li\ ' i li e~ perfofl llL'd o n Ilcllal r o f (-; 110,
rNe
:t . _ J)oes not Salisfy OI'M C .-ilui:! fOI' run~ ha s in g Allianc cs
.. \~ l lil h:d a b,,\c . th..: ,",,: .n<: 1\\0 r..:asO ll!; \\ h ~ _ do..:::; n\II .." I (i :) l ~ O I' I\ I 's S SS(j
crite ria . W it h resped I,) t he sceo nJ fe<LSOIl , C\\:~ 11 if\\.o c a SSUlllL' thai g. l" UUpS 11 1<:1 1 do no t
cOnlrac t \\ ilh the Fl':r·H3 I' carTI er ca ll be po k illi al SSSGs, _ docs no t ~ ali s ry O PM's
('ri(ni :1 li 'f 1'lIn.:iu" ifll' ; l l! i .l \ I ": c~;le; (l()I\':: ll li ,ll SSS ( is TI \<' .k f ll li till fl ll r :1 I'urd u ',i ll !'
all ia nce in tlli: 1110 7 Rate Inslructio ns PrQ \'ide<; tha t " Purc hasing Alliances a rc ~.!!~:..~rotl p..:i
bondmg t o g(~ lh e r to purc has.: health insura llce." (em phasis added ) _ docs 1I0 lmCe t
tile dd i ni taJIl u f ,I I' urchasing Allia nc..: be ca use it is cOli lp ri scu o r ho lh i ud i v ldu ~l ls and
groups. A co miJinntii)ll o f indi vidua ls a nd g r(I Up s is II Ol ille Iyp.: o r hn lldi ll g l ogo?1 h.: r In
p'UfdJasc i ll s u wll\.:: ~ th at O I' M ime nd ed to i ncl ude in Ihe Ra le [ Ilslruc ti(l ll de li nilion
Even the O l(j ' S Aud it Guida nce suppo rts Ihe conciusioLl Ihal a co mb ina llo n of
ind ividua ls and g roups such as _ s nOl a po tenti a l SSSG . Per Audi t G uida nce
CUIIl Ill UllI ly-J{ ;lk d Cam cn. L~ull <.'l i ll iN7 -0 2 (dfco.:ti v..: 0 5/05/97), a "" ..: o a liti o ll is i"u ril lcd
\vhc n sc ~'-c.-al s ubscribe.- gl'oups co me toget he r 10 fo rm olle un it a nd nego ti ale w ith the
pla n as a united fronL" (cm phasis (J(JdL-d)
Cjj·1(' conlinues to assert lhat _ docs nol mce t the req uire mc nt s 1) 1' ;\11 SSS(~
a nd thc n.: ]"H..: c:\IIn ul he t il L' hasis \(11" :1 d cfcc t i ~' c[,ric in,t!. filld ing or pri ~: lIl g a d iuSl ll l": lll
a g, u H .~1 " ,J It . I ]O\ \ L'\..: I , I II ' IrJ ..: r I . I pr..:.:i..:1 \ ..: all I lgl ll:., ( 11 1 ~ . db u ha~ IJc Il II 11L·J t il":
f( III (I\\i ll g cl wr:; in tit..: I)w ft l ~ ": I I (l rt ·s <l [l lll ic ati ' lIl o l"lh..." _ r" lil lt:! ll lelhlld u l{Jgy toJ t h ~
IT.lIBI ' lor C (l llt r~H..:l ~ L':l r 100 7.
'Ih ~ li llldall lL' llla l p ur [l(l~t: o f Ille S S SGs is 10 e ll s urc lil a l O f' r.·('s r;l l ..:s "r~
dd c rt ll il l..-:d in a IHalle r 0.: 0 11'> 1';1('111 \\'ith tilL SSS(is .s ~~ 4 8 c.r
I{ ~ 1602 .t70 - I Vd l,
--
;\ -')a, 2R. 20 I 0
I'a ~ ..: 7 .>1 I (,
--0 1',\-' ~I \il l l dck lll l1l l": 111<': FU -IU I' rat.: by sck...:lin g tll..- km c r Oll llL" [H" r:lh.: ~ .kli,...,:.! h~
u SlII g r al il H! III Clhod ~ O) Il S I ~ I ": 1l1 "illl th o se li SCO to d ~ ri \ 'c the SS S~ j 1"<1 1"::; . ' h: lllpli;]<;i:-
added ). \\1ICII.1 d isco unt is pr(I\"idcd 10 a n SSSG . O l' r\,i" s ral ing rcq uin': lI1 clIl:'; dictate: Ih ;( (
:10 cq u i\alelll Ji SCOU ll1 he applied to the Fl~I-IRP S\!e 48 C. F,R ~ 1(i :5 :! _~ 1 6 - 7 Wh)( "2 ) .
lnlhal n: g;m L \\ 1I("1t OI I I~.'1 sp ecitl c S.-::gI IlCIiI o f a ll SSSG rCL c i\ -c ~ a di scc,u ll L lhe ll
(J ill ~ II Ie c tJ lllpar:lb k :i<.~~~lll c m (..1 r th..: FE H B I' el Ho i hn ~111 shou ld r.;c,~ i \ e (he d isCOllll1 ill
;,rder ' ;1 [" the FUIlIP 10 he raled us in g a Ill er h{) d o lo g~ CO Il Si SICli 1 \\ llh Iha t u <;t'd 10 r ilk Ih(:
SSSG as req u ited 11\ OP~' I 's regu lati ons. See. 48 C.F_R. § 16 52 .2 15-70 . [t is a s r.;J llda rd
mdust ry pra.::tic .... fo r carrie rs 10 rat..: fl (ltl - t.... \cdicafc aud M edicare;:: CO ll lp<lIlellt '> 01 a g r<H ljl
[..... ,ti tlt p i.m ".... p , l/ tll ..:!.\ 0HC I~l l l u\\ :> Il u s sLln.J :Jl d Il\dll :>t f ~ rird...:tl c": lut lt..: ..: :1:-. .... u r _
Ill..: non -M·cd iea re s cgm c nt o(tl l<: g rou p received (l dl ~;C () U H t 0 , " _ wh d e tile
~·k dl\.: ar..: po rtlOl1 (I I" the group dId lIot receive any d i')cQIlIit. H O Wcv d . Ih .... Draft Report
Jllllli .... :-; the discoullt III Ci HC S cuI ire r EI IU P cnro lime lll . Appl yi llg. th..: d iscou nt to 111<':
'-'I II In:: FEIIIH' l.'nroll(ll cll t. 1I0t\l !\ ledi carc ;'lIld nOIl -Med icar.> di s regard ,> o r rvt · s
I"<•.:gulahol ls ,wJ : J Pp l i ~ :; a r;ll illg U\,:I I I (lJo l u g ~ 10 th,~ FF. I I U I' 111:.11 IS !lo t ":011 5 1:;1 0.:: 111 H it h III ....
<IPI ,ll c:lll k :---,:---':---"i ·) 11 k:l h ntj \l lu g~ . JIl .... ~:>O':: lI ..: .... . tho.: I 1-:1 1131' I"..:..:":I\C:> 111< ,1"": 111; 11 11[1": 1)<: 11.: 111
·llr tll..: b;u g,lill jllUI iJ..:d tq 11 1l.' :»)SG <I ud I ll.I~ s kss t llit ll wlli.l t It IS l egal l y a lIJ ·
('O Il[f;K lll(\ll ~ r....q ll ired II) pa~ GHC. All exa m ple calc u la l lfll l de lllo ll s tra tilig I h ..: ri.1f.... gll ing
is ;llla..: h.... d hLro.::tu 3 :; F " hi b ll H
III ;ludill o n . l1k Jh tlllg (li..: d i~"':()lJ lll :i h~I\\ ":~ 11 II ....· SSS (j s rl.' kd i...:a r~ a nd 11011·
iI..kd l...:;u ...: r:lk s d.)..: :; lIul I...:s uh In (h...: ap p llc" Ii ull o f , I t..'OJ ISISI<:1I1 Ja lin g Illo.::l llOdol 'l g;
bcl\\":":lIth...: SSSC, an d j U ILH' II I t. ..: SSSl f I\<l:, Jhlt r a l..:d \\1I1L I h.: S;UI IL· bkllJm S
Jl\.'II HJ~lu l .l\.':'\ \hll "': lH Cf , I h.~ ~SS G· :-; mix l!LlIIC.... 1l M..:dicarc illlLl lh lll -McJi c a n: II ill
Llr..:h . If <:1 cr. IILlt e ll Iii.: rEH Bf' group m ix het\-vccli j\ 1cd ica re all t1l hln-M ed i c ar ~ . T hu s
111..: <l[1pllC{HIt..H I ' I t" ,I I, I.... ndcd SSS(; rillt.: {co mbi Il l l ig i\ k di ("a re a lld II, HI - ~ · kdi..:ar .... \ h ' Ih..:
l T I I B I' ~c HHi p \\ III r":SI JII II I Ih e r EI {[W rc(;e i l' ill ~ 11 1('1\: u L I ,1i s<': Ll tillt l il.'lll lilL" SSSCi
n:c..: il·c, 1 III ks-.. Or'l di scoulll th all lh.... SSSG re.::c l\ ....d JC jJt: lld in p, UP'lI l III..: FI:I Hl( ' ·.'>
Medll;a rcinon -Mc(h..:ar<! nu x ill comparison to that of i lle SSSG. Sc~ Ex hi b it H fo r <III
n ;ulI p lc c;lk u l<lf io n d em onstra ting Il le to rego ing. S u ch il res u ll is C (l ntr ar~ 10 Ihe ra ting
rcq ul fC lt l...: n ts gOlcr llill ~ the r[ H B t~ .
Ucl eled by Ih e 01(;
Not Rel evant to the Final Report
--
Ma~ 28. 2010
!lag,· S (If 1(;
Deleted by the OIG
Not Relevant to the Final Report
Fina ll y. the rEHBP rates for the Hi g h Option Benefi ts and Sland::mJ Plan l'3 encfit s
did not includ ..~ taxes and commiss ions rdated 10"l1li
before dctcnnining the di scollnt
due III !he rl :. HHP. which inappropriate ly lo wers the FEHf)P nile and inap propri::l.I.: ly
mllak's the d i:;clllint due In the FEHnr.
Deleted by the OIG
Not Relevant to the Final Report
5. Adjustment Ou c FF.UBr ror C ontra ct YC;lf 2007
na S"d tJlllh..: (,-,r<:goin g, 110 adjuslml.:nl is due the FEIIIJI' III cOIlJlecti01l \\ ith
_ as ~ d nes lIo t s:l.!isfy the SSSCi el iteri,) lor ?O() 7.
!-'Ilr contract year 2(}Olt the Draft. Report agrees wilh G HC's SSSG select ions.
Ho\\'c\/cr, the Orati contain s preliminary findin gs tha t one of the SSSGs. ~
_ ro."l;C I \I.,: J a , uf wluc h wa s Ilot <1pp lted tQ lh..; n~ I IIW _
G HC acknowk dges rece ived a di sc() ulll and tha t the ITHUI' did not
eli ,;':o""L '1l1e discount \1/35 the resu lt of
an UI1 i IIkUUOIl<11 IriHI Sl h\sitioli of numb..:rs w hen enter; ng g roup' 5 ell rolll11<'111 data i n
th~ rat 111 0'. tflu dd. HCt\\\;,vcr , (~ I !C' di sa!;rco.:s wllh tho.: Draft Re port' s a nal~ "is the ~ or
_ a l\d liEl-fBl' rating.
I'; r-;I ;1:'> L\ pLII I1 ~~, I ' I I H'\~_ \\ h ~11
oll l) a s r~·,,:; ! I .;,..; g llh:111 01' ,111 SSS(; 1''':'':'':11<.::; a
Ji Sl:l.) lIll1 1I 1 ~~ ll
l)lll y lil(' Ctllllparabk seglllL"lll arlltc FEHHI' enrol 1I 11":11 l slwukl reed \ ..: th;n
Ji ~t.::olll1 l ill "nkr " If II,,: 1,1,:1 1111' h I II..: rated using a rll cliuldo lo!-!,y CO Il S i ~h:I J I Hllh 111:1 1
us e d 10 nl<: 111(' SSS(i as r- by OPM's regulations See 4X ('TR ~ 16 ) ~ 2 15-7U
As \\;tll h,t:-> sl':parak ra tings for il s M..:di c~lrl' aud nOIl - Ml" d i ~aro..:
dt .'\c\lunl in l OOX applieo (l Illy llllh l' g rllup 's \HIIl-l\kJ ,c,Ui::
pl)pUlalioll . I hcrL'l ,ll"l' , [it:lI (l!scuLlIlI should olily he apphe<llo llw nn l1 - i" kd lc clro:
Page 9 of lG
IIlcmba:-; of the FEHBP . Application of a non-Medicare population di sc(lllil t l{I the cillirc.:
F[I-II3P di sregards O[lrvrs reg ulations and rating rcqulr(:mcllt s and applie s a rating
mc thodol(lgy to the FEUBI) that is not consistent \',:ith the applicable SSSG's
nlcthock,logy.
Deleted by the OIG
Not Relevant to the Final Report
Page 10 of 16
Deleted by the ole
Not Relevant to the Final Report
IJage I I o fl 6
Deleted by the OIG
No t Relevant to the Final Report
Deleted by the OlG
Not llelevant to the Final Re po rt
--
Ma~ ~ S . ~()IO
P3g..: 1.1 (I f I (j
Deleted by the OIG
Not Relevant to the Final Report
( ', 1 .0 :0. 1 111\ I.' S IUlI'III lnnllll l'
A n y losl in \',,:slllIcnt in<.:un1t: Ull.: the FE II B P lIl ust be bas.:d on Ih.. ,IIIi ULllll S
\lll i m : l ld ~ .llh' rl1,: FI'[ IHI ' .111,1 rl"r Ib,' inn .I!.'.! :.. 11,'11111 ...... \'1 t~' r1h ill Ih, - 1)1,11", 1: ':11. 11 1
A. NUfl -( ' U\l' I ' l~ d ,\I'tJ l"lioll · H.cI:lll'd ( "J:t im s
Page 1401' 16
T he Draft Report ':olltai ns prel ilTlinary find ings that d uri ng the period o r Jan uary
I. 2005 through rkcembe r 3 1. 2006 , the e xperien cc pe riod lor the 2006 a nd 200 7
contract yea rs, G II C pa id 18 a boltion-rel ated c la ims fo r the FEHBP that sho uld not have
bee n pa id or for whi c h the supporting doc umentatio n was not adequa te to justi fy the
cl a im pay ment.
Ma nageme nt agrees to the above findi ng. As a result o rt he FEI-IUP aud it, two
issues \Ven; ideilli li ed and a rc be ing add ressed . O ne isslle cOl}cems a lack o f an int erna l
cOl1lrol to stop interna l cla ims (cl a im s for proced ures pro \' ided in lac ilities owned a nd
o pe rated by ( i HC ) from payi ng since a medi cal necessity re \'iew process is not in place to
di st ingu ish hd \\ecn clai ms that an: f()f co ve red sen 'ices a nd shou ld he raid a nd those Ih::H
a rc lo r non-covered services accord ing to the FEHBP cont rac t and sho uld not be paid_
Work is underway to e na bl e GHC prac titio ne rs to use the medical necess ity rev iew
process to ensure that cla ims a re (k"lid acco rding to' appli cable co ntract terms.
T he seco nd iss Lle that resulted in cla ims be ing pa id \Vh": l1 Lhey sho uld have b..:e n
de ni ed ou,:urred ill a \ cry iso laLed Il ulll ba o f cases a nd rda tes to laboratory se n ices
prov ided in G HCs contrac ted network. The control in place to pre \'e nt thi s in ....o lves the
orde ri ng physician knowing these se rvices a re nOll -covered by req uesti ng and be ing
de ni ed pre-authorization . It is the provide r's respons ibili ty 10 identify these sen'iees as
no n-covered and to ensure rela ted cla ims a re not submi tted for re im burseme nt.
In response to these two ide ntifit:d process gaps G HC wi ll create and imple me nt a
~rec ifi c po licy and proc('d urc docu me nting the'>e intema l cOIII [l. ls and ,lCC\l ulllab ilit ies_
Th is po licy \... ill help to Ul(lre c learl y commulli cate FEHRP sta ndards and how these arc
me t. In addition, tra ining in the torm o fa written process sUlllmary \\.:ill he provided to
c mploYi!d prac titi oners identi fied through thi s a udit process and a fo rmal co mmuni catio n
regarding thi s sta ndard will be added to G HCs Cont racted Pro\'idcr Manua l. To co nfirm
lhe d Tccli velless o r these measures. an audit \\lill be pe rfo rmed a nd a udit outcomes
doclI[\1ented and rev iewed s ix-mo nth s a ft e r the submi ss ion o f thi s respo nse.
It G cndc r -SI.ccific h\t:nlificrs
T he Draft Report conta ins prelimin ary fi ndi ngs Ihal G I-I C's cla ims data
subm iss ion Lo the O IG in 2007 pursuant to Carri e r Lette r 2007-09 was inco mplete
because it did lIot inelude geuder-speci fic identill ers i!llhe data (' dds.
It is agreed that G HC cla ims data did not include gende r-spec ille identifie rs in the
data lields. In response, th is field will be included in the program used to c reate the
FEI IIW d~lla. \\'c a rc rcs uhmitting lilc Jala to suppOrt f..ILc:; IllI" 2008 and a C D con la ining
tha t informatio n is he reto included as Exhib it O . Wr: have a l ~ o created a new process to
chec k the dala (i dds f e~ u ircd to ellsur..: a ll requested data is submi tted . Going f(lrWard,
when G IIC assem bles th ~ data req uested by Ihe U IG, J re fere n~c J oeullle nt \.. ill be
CfcCl tcd 10 idcnt ify the I:o mponculs of lhc text document I h ~H correspo nd to the da la
Page l 5 0f 16
requested from the Ol.G . Through thi s process, G II C ~\iJI be ahlt.! to c tl sur..:: th at the t c~ l
doc ume nt with the c laims data conta ins; a ll of the req uested elemell ts .
III. Conclusion
Ba~d on the foregoi ng and a ttached supporl ing docume llta tio n. FEHBP is due $0
fo r 2007 a nd is due $ 1,44 5,362 for 2008 as noted on Exhi bit J - 2008 Audited FEI-IBP
Wo rkbook adjusted , Sheet E.t hibit-A Hif!h Option. Ce ll P47 ..
-
If you ha ve allY q uestions regarding our resp()nse . please cO llta(;[
Audit of the Federal Employees Health Benefits Program Operations at Group Health Cooperative
Published by the Office of Personnel Management, Office of Inspector General on 2010-09-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)