oversight

Audit Of The Federal Employees Health Benefits Program Operations at Coventry Health Care of Florida

Published by the Office of Personnel Management, Office of Inspector General on 2012-03-28.

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

                                                        CONTENTS


                                                                                                                                Page

     EXECUTIVE SUMMARY............................................................................................... i

 I. INTRODUCTION AND BACKGROUND ..................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY .......................................................... 3

III. AUDIT FINDINGS AND RECOMMENDATIONS ....................................................... 5

     Premium Rate Review ..................................................................................................... 5

     1. Defective Pricing ......................................................................................................... 5

     2. Lost Investment Income ............................................................................................... 6

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 8

    Exhibit A (Summary of Questioned Costs)

    Exhibit B (Defective Pricing Questioned Costs)

    Exhibit C (Lost Investment Income)

     Appendix (Coventry Health Care of Florida’s December 1, 2011 response to the draft
     report)
The Plan has participated in the FEHBP since 1996 and provides health benefits to FEHBP
members throughout South Florida. The last audit conducted by our office was a full scope audit
and covered contract years 2000 through 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
In conducting the audit, we relied to varying degrees on computer-generated billing and
enrollment 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 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 Sunrise, Florida during May 2011.
Additional audit work was completed at our offices in Cranberry Township, Pennsylvania and
Washington, D.C.

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 (FEHBAR), 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
  shows that the FEHBP was overcharged $822,940 for both the high and standard options in
  contract year 2010 (see Exhibit B).

  Plan’s Comments:

  The Plan did not have an opportunity to comment on the 2010 finding because the SSSG
  information was not received until after our draft report was issued.

  Recommendation 1

  We recommend that the contracting officer require the Plan to return $1,056,129 to the
  FEHBP for defective pricing in contract years 2007 and 2010.

2. Lost Investment Income                                                                    $83,062

  In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
  FEHBP is entitled to recover lost investment income on the defective pricing finding in
  contract years 2007 and 2010. We determined that the FEHBP is due $83,062 for lost
  investment income, calculated through March 31, 2012 (see Exhibit C). In addition, the
  FEHBP is entitled to lost investment income for the period beginning April 1, 2012, until all
  defective pricing finding amounts have been returned to the FEHBP.

  FEHBAR 1652.215-70 provides that if any rate established in connection with the FEHBP
  contract was increased because the carrier furnished cost or pricing data that was not
  complete, accurate, or current as certified in its Certificate 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 defective pricing, the regulation states that the government is
  entitled to a refund and simple interest on the amount of the overcharge from the date 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.

  Recommendation 2

  We recommend that the contracting officer require the Plan to return $83,062 to the FEHBP
  for lost investment income calculated through March 31, 2012. In addition, we recommend
  that the contracting officer recover lost investment income on amounts due for the period
  beginning April 1, 2012, until all defective pricing amounts have been returned to the FEHBP.

  Plan’s Comments (see Appendix):

  “In calculating lost investment income, we used the interest rates provided in Exhibit C of the
  Draft Report. In contrast with the methodology used in the Draft report which assumes the

                                                 6
amount overcharged to the FEHBP was at the same point in time, the methodology we
applied calculates lost investment income based on the monthly premium payment schedule.
In other words, the FEHBP loss of investment income due to any overcharging should be
determined on timing of those monthly payments.”

OIG’s Response to the Plan’s Comments:

Our calculation of lost investment income accounted for the time value associated with
gradual premium payments made throughout the contract year.




                                            7
              IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community-Rated Audits Group

                    , Auditor-In-Charge

                  , Lead Auditor


                  ., Chief

                , Senior Team Leader




                                          8
                                               Exhibit A


            COVENTRY HEALTH CARE OF FLORIDA
                 Summary of Questioned Costs

Defective Pricing Questioned Costs:

      Contract Year 2007                          $233,189
      Contract Year 2010                          $822,940
         Total Defective Pricing                $1,056,129

Lost Investment Income                             $83,062

Total Questioned Cost                           $1,139,191
                                                                                  Exhibit B

                               COVENTRY HEALTH CARE OF FLORIDA
                                  Defective Pricing Questioned Costs

2007 Contract Year
                                              Single       Family
Plan's Proposed Rates
Audited Line 5 Rates

Overcharge

March 31, 2007 Enrollment
x 26 pay period
Amount Due FEHBP in 2007                                                           $233,189


2010 Contract Year - High Option
                                              Single       Family
Plan's Reconciled Rates
Audited Line 5 Rates

Overcharge

March 31, 2010 Enrollment                      486
x 26 pay period                           $
Amount Due FEHBP in 2010 - High Option                                 $755,127


2010 Contract Year - Standard Option
                                              Single       Family
Plan's Reconciled Rates
Audited Line 5 Rates

Overcharge

March 31, 2010 Enrollment
x 26 pay period
Amount Due FEHBP in 2010 - Standard Option                              $67,813

Amount Due FEHBP in 2010 - Total                                                   $822,940


Total Defective Pricing Questioned Cost                                           $1,056,129