Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations at Coventry Health Plan of Florida

Audit of the Federal Employees Health Benefits Program Operations at Coventry Health Plan of Florida

Published by the Office of Personnel Management, Office of Inspector General on 2015-06-18.

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

AUDIT OF THE FEDERAL EMPLOYEES HEALTH
BENEFITS PROGRAM OPERATIONS AT COVENTRY
HEALTH PLAN OF FLORIDA

Report Number 1C-5E-00-14-070
June 18, 2015

-- 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 (http://www.opm.gov/our-inspector-general), 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

Audit of the Federal Employees Health Benefits Program Operations at Coventry
Health Plan of Florida
Report No. 1C-5E-00-14-070 June 18, 2015

Why Did We Conduct the Audit? What Did We Find?

The primary objectives of the audit This report questions $230,777 for inappropriate health benefit
were to determine if Coventry Health charges to the FEHBP in contract year 2011. The questioned
Plan of Florida (Plan) offered the amount includes $215,764 for defective pricing and $15,013 due
Federal Employees Health Benefits the FEHBP for lost investment income, calculated through
Program (FEHBP) premium rates that January 31, 2015. We found that the FEHBP rates were developed
were based on complete, accurate and in accordance with applicable laws, regulations, and the Office of
current pricing data, and that the rates Personnel Management’s rules and regulations for contract year
were equivalent to the Plan’s Similarly 2012.
Sized Subscriber Groups, as provided
in Federal Employees Health Benefits We determined that the FEHBP rates in contract year 2011 were
Acquisition Regulation 1652.215- overstated by $182,475 and $33,289, for both high and standard
70(a). Additional tests were options, respectively. For both options, the Plan did not apply the
performed to determine whether the correct trend and administrative fee factors in the FEHBP rate
Plan was in compliance with the development.
provisions of the laws and regulations
governing the FEHBP. Consistent with the regulations and contract, the FEHBP is due
$15,013 for lost investment income, calculated through January 31,
What Did We Audit? 2015 on the defective pricing finding.

Under contract CS 2715-A, the Office The Plan agrees with the audit findings and has remitted payment
of the Inspector General completed a in full to the U.S. Office of Personnel Management. No further
performance audit of the FEHBP rates action is necessary.
offered for contract years 2011 and
2012. Our audit fieldwork was
conducted from September 15, 2014
through September 19, 2014 at the
Plan’s office in Sunrise, Florida.
Additional audit work was completed
at our offices in Jacksonville, Florida
and Cranberry Township,
Pennsylvania.

_______________________
Michael R. Esser
Assistant Inspector General
for Audits
i
ABBREVIATIONS

FEHBAR Federal Employees Health Benefits Acquisition Regulations
FEHBP Federal Employees Health Benefits Program
OIG Office of the Inspector General
OPM U.S. Office of Personnel Management
Plan Coventry Health Plan of Florida
SSSG Similarly Sized Subscriber Group
U.S.C. United States Code

ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
TABLE OF CONTENTS

Page

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

ABBREVIATIONS ..................................................................................................... ii

I. 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 ....................................................7

Exhibit A (Summary of Questioned Costs)

Exhibit B (Defective Pricing Questioned Costs)

Exhibit C (Lost Investment Income)

Appendix (Coventry’s February 16, 2015 response to the draft report)

REPORT FRAUD, WASTE, AND MISMANAGEMENT
IV. MAJOR CONTRIBUTORS
I. BACKGROUND
TO THIS REPORT
This final report details the findings, conclusions, and recommendations resulting from the audit
of the Federal Employees Health Benefits Program (FEHBP) operations at Coventry Health Plan
of Florida (Plan).

The audit covered contract years 2011 and 2012, and was conducted at the Plan’s office in
Sunrise, Florida. The audit was conducted pursuant to the provisions of Contract CS 2715-A; 5
United States Code (U.S.C.) Chapter 89; and 5 Code of Federal Regulations Chapter 1, Part 890.
The audit was performed by the U.S. Office of Personnel Management’s (OPM) Office of the
Inspector General (OIG), as established by the Inspector General Act of 1978, as amended.

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, and is administered by OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers that provide service benefits, 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 subject to the Health Maintenance Organization Act of 1973 (Public Law 93-
222), as amended (i.e., many community-rated carriers are federally qualified). In addition,
participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The FEHBP should pay a premium rate that FEHBP Contracts/Members
is equivalent to the best rate given to either March 31
of the two groups closest in size to the
FEHBP. In contracting with community-
3,500
rated carriers, OPM relies on carrier
3,000
compliance with appropriate laws and
2,500
regulations and, consequently, does not
2,000
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and 1,500
other unique features of the FEHBP. 1,000
500
The chart to the right shows the number of 0
2011 2012
FEHBP contracts and members reported by Contracts 1,260 1,339
the Plan as of March 31 for each contract Members 2,888 3,098

1 Report No. IC-5E-00-14-070
year audited.

The Plan has participated in the FEHBP since 1996 and provides health benefits to FEHBP
members throughout South Florida. The Plan’s prior audit covered contract years 2006 through
2010. All findings associated with 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 preparation of this report and are included,
as appropriate, as the Appendix.

2 Report No. 1C-5E-00-14-070
IV. MAJOR CONTRIBUTORS
II. OBJECTIVES, SCOPE, AND TO THIS REPORT
METHODOLOGY
Objectives
The primary objectives of this performance audit were to determine if the FEHBP premium rates
were developed using complete, accurate, and current data, and are equivalent to the Plan’s
Similarly Sized Subscriber Groups (SSSGs), as provided in Federal Employees Health Benefits
Acquisition Regulation (FEHBAR) 1652.215.70(a). Additional tests were performed to
determine whether the Plan was in compliance with the provisions of the laws and regulations
governing the FEHBP.

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 our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

This performance audit covered contract years
2011 and 2012. For these contract years, the FEHBP Premiums Paid to the Plan
FEHBP paid approximately $26.6 million in
$15
premiums to the Plan. The premiums paid for
each contract year audited are shown on the
$14
chart to the right.
Millions

$13
OIG audits of community-rated carriers are
designed to test carrier compliance with the
$12
FEHBP contract, applicable laws and
regulations, and OPM Rate Instructions to $11
Community-Rated Carriers (rate instructions). Revenue
2011 $12.3
These audits are also designed to provide
2012 $14.3
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 SSSGs were selected;

3 Report No. 1C-5E-00-14-070
 the rates charged to the FEHBP were developed using complete, accurate and current
pricing data, and were 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
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 from September 15, 2014 through September 19, 2014 at the
Plan’s office in Sunrise, Florida. 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 Plan’s Certificates of Accurate Pricing. In addition, we examined the rate development
documentation and billings to other groups, such as the SSSGs, to determine if the FEHBP rates
were reasonable and equitable. Finally, we used the contract, the FEHBAR, and the rate
instructions 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 Report No. 1C-5E-00-14-070
IV. AUDIT
III. MAJOR CONTRIBUTORS
FINDINGS TO THIS REPORT
AND RECOMMENDATIONS
Premium Rate Review

1. Defective Pricing $215,764

The Certificate of Accurate Pricing the Plan signed for contract year 2011 was defective. In
accordance with Federal regulations, the FEHBP is therefore due a rate reduction for this year.
Application of the defective pricing remedy shows that the FEHBP is due a premium
adjustment of $215,764 (see Exhibit A).

FEHBAR 1652.215-70 provides that carriers proposing rates to OPM
are required to submit a Certificate of Accurate Pricing certifying that
The FEHBP is due
the proposed subscription rates are based on complete, accurate and
a rate reduction of
$215,764 for current pricing data. Furthermore, FEHBAR 1652.216-70 states that the
defective pricing in subscription rates agreed to in the contract shall be equivalent to the
contract year 2011. subscription rates given to the community-rated carrier’s SSSGs, as
defined in FEHBAR 1602.170-13. SSSGs are the Plan’s two employer
groups closest in subscriber size to the FEHBP. If it is found that the
FEHBP rates were increased because of defective pricing or defective cost or pricing data,
then, the rates shall be reduced in the amount by which the price was increased because of the
defective data or information.

2011

The Plan selected and as SSSGs for contract year 2012.
We disagree with the Plan’s selection of as an SSSG. We selected
instead because it was closest in subscriber size to the FEHBP. The SSSGs
and FEHBP were rated using an Adjusted Community Rating methodology. Our analysis
shows that neither of the SSSGs received a discount.

We determined that the FEHBP high and standard option rates were overstated by $182,475
and $33,289, respectively. For both options, the Plan applied a percent medical and
prescription drug trend factor in its FEHBP rate development. The Plan should have rated the
FEHBP using a percent medical trend factor and a percent prescription drug trend
factor that were used to rate an SSSG. Additionally, the Plan applied a percent
administrative fee factor to the FEHBP, instead of the proper percent factor.

We recalculated the FEHBP rates by applying the percent medical trend factor, the
percent prescription drug trend factor, and the percent administrative fee factor. A

5 Report No. 1C-5E-00-14-070
comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the
FEHBP high and standard options were overcharged $182,475 and $33,289, respectively (see
Exhibit B).

Recommendation 1

We recommend that the Plan return $215,764 to the FEHBP for defective pricing in contract
year 2011. Since we verified that the Plan returned $215,764 to the FEHBP after receiving
the draft report, no further action is required.

2. Lost Investment Income $15,013

In accordance with 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 year 2011. We determined that the FEHBP is due $15,013 for lost investment

income, calculated through January 31, 2015 (see Exhibit C).

FEHBAR 1652.215-70 provides that, if any rate established in The FEHBP is due
lost investment
connection with the FEHBP contract was increased because the
income on the
carrier furnished cost or pricing data that was not complete, accurate, defective pricing
or current as certified in its Certificate of Accurate Pricing, the rate finding in the
shall be reduced by the amount of the overcharge caused by the amount of $15,013.
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 Plan return $15,013 to the FEHBP for lost investment income,
calculated through January 31, 2015. Since we verified that the Plan returned $15,013 to the
FEHBP after receiving the draft report, no further action is required.

Plan’s Comments (see Appendix):

The Plan agrees with the defective pricing finding and the calculated lost investment income
and submitted payment in the full amount of $230,777 ($215,764 + $15,013).

6 Report No. 1C-5E-00-14-070
IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

, Auditor-in-Charge

, Auditor

, Chief

, Senior Team Leader

7 Report No. 1C-5E-00-14-070
EXHIBIT A

Coventry Health Plan of Florida
Summary of Questioned Costs

Defective Pricing Questioned Costs

Contract Year 2011 $215,764

Total Defective Pricing Questioned Costs $215,764

Lost Investment Income $15,013

Total Questioned Costs $230,777

Report No. 1C-5E-00-14-070
EXHIBIT B

Coventry Health Plan of Florida
Defective Pricing Questioned Costs

Contract Year 2011 - High Option
Self Family
FEHBP Line 5 - Reconciled Rate $ $
FEHBP Line 5 - Audited Rate $ $

Bi-weekly Overcharge $ $

To Annualize Overcharge:
March 31, 2011 enrollment
Pay Periods 26 26
Subtotal $ $ $182,475

Contract Year 2011 - Standard Option
Self Family
FEHBP Line 5 - Reconciled Rate $ $
FEHBP Line 5 - Audited Rate $ $

Bi-weekly Overcharge $ $

To Annualize Overcharge:
March 31, 2011 enrollment
Pay Periods 26 26
Subtotal $ $ $33,289

Total 2011 Defective Pricing Questioned Costs $215,764

Report No. 1C-5E-00-14-070
EXHIBIT C

Coventry Health Plan of Florida

Lost Investment Income

Year 2011 2012 2013 2014 31-Jan-15 Total
Audit Findings:

1. Defective Pricing $215,764 $0 $0 $0 $0 $215,764

Totals (per year): $215,764 $0 $0 $0 $0 $215,764
Cumulative Totals: $215,764 $215,764 $215,764 $215,764 $215,764 $215,764

Avg. Interest Rate (per year): 2.563% 1.875% 1.563% 2.063% 2.125%

Interest on Prior Years Findings: $0 $4,046 $3,371 $4,450 $382 $12,249

Current Years Interest: $2,764 $0 $0 $0 $0 $2,764

Total Cumulative Interest Calculated
Through January 31, 2015: $2,764 $4,046 $3,371 $4,450 $382 $15,013

Report No. 1C-5E-00-14-070
APPENDIX

Underwriting Head Federal
Plans

February 16, 2015 @aetna.com
Tel:
980 Jolly Road,
Blue Bell, PA 19422

U.S. Office of Personnel Management
Audit Resolution Branch
1900 E Street NW
Room 3400
Washington, DC 20415

RE: Draft Report No. 1C-5E-00-14-070

Dear ,

Aetna has reviewed the Draft Report for Coventry Health Plan of Florida (code 5E) and agrees with the
Office of Inspector General’s findings. The findings pertain to plan year 2011, which include $215,764
for defective pricing and $15,013 due the FEHBP for lost investment income, for a total amount of
$230,777.

Enclosed please find a check in the amount of $230,777.

Please let me know if there are any additional questions or if you need any additional information from
Aetna.

Thank you.

Sincerely,

cc: – Chief, Community-Rated Audits Group

Report No. 1C-5E-00-14-070

Report Fraud, Waste, and

Mismanagement

Fraud, waste, and mismanagement in
Government concerns everyone: Office of
the Inspector General staff, agency
employees, and the general public. We
actively solicit allegations of any inefficient
and wasteful practices, fraud, and
mismanagement related to OPM programs
and operations. You can report allegations
to us in several ways:

By Internet: http://www.opm.gov/our-inspector-general/hotline-to-
report-fraud-waste-or-abuse

By Phone: Toll Free Number: (877) 499-7295
Washington Metro Area: (202) 606-2423

By Mail: Office of the Inspector General
U.S. Office of Personnel Management
1900 E Street, NW
Room 6400
Washington, DC 20415-1100

Report No. 1C-5E-00-14-070