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 GHI HMO Select, Inc. Report No. 1C-6V-00-12-010 Date: August 23, 2012 -- 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. AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization GHI HMO Select, Inc. Contract Number CS 2655 - Plan Code 6V New York, New York Report No. 1C-6V-00-12-010 Date: August 23, 2012 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 GHI HMO Select, Inc. Contract Number CS 2655 - Plan Code 6V New York, New York Report No. 1C-6V-00-12-010 Date: August 23,2012 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at GHI HMO Select, Inc. – plan code 6V (Plan). The audit covered contract years 2007, 2008, 2010, and 2011 and was conducted at the Plan’s office in New York, New York. This report questions $282,614 for inappropriate health benefit charges to the FEHBP in contract years 2007, 2008, 2010, and 2011. The questioned amount includes $254,603 for defective pricing and $28,011 due the FEHBP for lost investment income, calculated through July 31, 2012. For contract years 2007 and 2008, we determined that the FEHBP’s rates were overstated by $73,311 and $57,819, respectively, due to defective pricing. The Plan did not properly credit the FEHBP for the Graduate Medical Expense (GME) charge. Also, the Plan did not provide sufficient support to show that the FEHBP was not charged state premium taxes. For contract years 2010 and 2011, we determined that the FEHBP’s rates were overstated by $75,049 and $48,424, respectively, due to defective pricing. More specifically, the Plan did not properly credit the FEHBP for the GME charge. i Consistent with the FEHBP regulations and contract, the FEHBP is due $28,011 for lost investment income, calculated through July 31, 2012, on the defective pricing findings. In addition, we recommend that the contracting officer recover lost investment income starting August 1, 2012, until all defective pricing amounts have been returned to the FEHBP. ii 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 (GHI HMO Select, Inc.’s July 31, 2012, response to the draft report) The Plan has participated in the FEHBP since 1993 and provides health benefits to FEHBP members throughout the New York City area. The last audit of the Plan conducted by our office was a rate reconciliation audit for contract year 2009. There were no issues identified in that year. 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 included, as appropriate, in 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. 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 $4 auditing standards. Those standards require that $3 Millions we plan and perform the audit to obtain sufficient, appropriate evidence to provide a $2 reasonable basis for our findings and conclusions based on our audit objectives. We believe that $1 the evidence obtained provides a reasonable $0 basis for our findings and conclusions based on 2007 2008 2010 2011 Revenue $4.0 $2.7 $2.1 $1.8 our audit objectives. This performance audit covered contract years 2007, 2008, 2010, and 2011. For these contract years, the FEHBP paid approximately $10.6 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 3 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 conducted during the month of December 2011, and additional audit work was completed at our offices in Cranberry Township, Pennsylvania; Jacksonville, Florida; 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, 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 RECOMMENDATIONS Premium Rate Review 1. Defective Pricing $254,603 The Certificates of Accurate Pricing the Plan signed for contract years 2007, 2008, 2010, and 2011 were defective. In accordance with Federal regulations, the FEHBP is therefore due a rate reduction for these years. Application of the defective pricing remedy shows that the FEHBP is entitled to a premium adjustment totaling $254,603 (see Exhibit A). Carriers proposing rates to the OPM are required to submit a Certificate of Accurate Pricing certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are market price rates. FEHBP regulations refer to a market price rate in conjunction with the rates offered to SSSGs. SSSGs are the plan’s two employer groups closest in size to the FEHBP. If it is found that the FEHBP was charged higher than the market price rate (i.e., the best rate offered to an SSSG), a condition of defective pricing exists, requiring a downward adjustment of the FEHBP premiums to the equivalent market price rate. 2007 OPM issued Carrier Letter 2003-16 in 2003 to all New York plans stating that certain surcharges and assessments imposed by the Health Care Reform Act of 2000 are unallowable charges to the FEHBP. Graduate Medical Expense (GME) is one of the unallowable charges. We found that the Plan did not properly credit the FEHBP for the GME charge. The Plan calculated the per-member-per-month amount for the credit in the rate model but did not apply it appropriately to the FEHBP rates. Also, we determined that the FEHBP did not receive a state premium tax credit. OPM’s rating instructions provide that the FEHBP should not be charged for state premium taxes. The Plan states it did not charge the FEHBP state premium taxes in 2007. However, the Plan could not provide sufficient support to show how the tax was credited. Therefore, we included a credit for state premium taxes in our audited FEHBP rate development. A comparison of our audited line 5 rates to the Plan’s proposed line 5 rates shows that the FEHBP high option was overcharged $27,615, and the FEHBP’s standard option was overcharged $45,696, for a total overcharge of $73,311 for contract year 2007 (see Exhibit B). 2008 As in 2007, the Plan did not properly credit the FEHBP for the GME charge or credit the FEHBP for state premium taxes. Therefore, we included credits for both GME and state premium taxes in our audited FEHBP rate development. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $57,819 for contract year 2008 (see Exhibit B). 5 2010 As in prior years, the Plan did not properly credit the FEHBP for the GME charge. Therefore, we included a credit for GME in our audited FEHBP rate development. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $75,049 for contract year 2010 (see Exhibit B). 2011 As in prior years, the Plan did not properly credit the FEHBP for the GME charge. Therefore, we included a credit for GME in our audited FEHBP rate development. A comparison of our audited line 5 rates to the Plan’s reconciled line 5 rates shows that the FEHBP was overcharged $48,424 for contract year 2011 (see Exhibit B). Recommendation 1 We recommend that the contracting officer require the Plan to return $254,603 to the FEHBP for defective pricing in contract years 2007, 2008, 2010, and 2011. Plan’s Comments (see Appendix): The Plan agrees with our findings. 2. Lost Investment Income $28,011 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, 2008, 2010, and 2011. We determined that the FEHBP is due $28,011 for lost investment income, calculated through July 31, 2012 (see Exhibit C). In addition, the FEHBP is entitled to lost investment income for the period beginning August 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 were 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. 6 Recommendation 2 We recommend that the contracting officer require the Plan to return $28,011 to the FEHBP for lost investment income for the period January 1, 2007, through July 31, 2012. In addition, we recommend that the contracting officer recover lost investment income on amounts due for the period beginning August 1, 2012, until all defective pricing amounts have been returned to the FEHBP. Plan’s Comments (see Appendix): The Plan agrees with our finding. 7 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group , Auditor-In-Charge , Lead Auditor , Auditor ., Chief Senior Team Leader 8 Exhibit A GHI HMO Select, Inc. - Plan Code 6V Summary of Questioned Costs Defective Pricing Questioned Costs: Contract Year 2007 $73,311 Contract Year 2008 $57,819 Contract Year 2010 $75,049 Contract Year 2011 $48,424 Total Defective Pricing Questioned Costs $254,603 Lost Investment Income $28,011 Total Questioned Costs $282,614 Exhibit B Page 1 of 2 GHI HMO Select, Inc. - Plan Code 6V Defective Pricing Questioned Costs Contract Year 2007 - High Option Self Family Plan's Proposed Rates Audited Line 5 Rates Bi-weekly Overcharge To Annualize: March 31, 2007 Enrollment x 26 Pay Periods Subtotal Amount Due FEHBP in 2007 - High Option $27,615 Contract Year 2007 - Standard Option Self Family Plan's Reconciled Rates Audited Line 5 Rates Bi-weekly Overcharge To Annualize: March 31, 2007 Enrollment x 26 Pay Periods 26 26 Subtotal Amount Due FEHBP in 2007 - Standard Option $45,696 Contract Year 2008 Self Family Plan's Reconciled Rates Audited Line 5 Rates Bi-weekly Overcharge To Annualize: March 31, 2008 Enrollment x 26 Pay Periods 26 26 Subtotal Amount Due FEHBP in 2008 $57,819 Exhibit B Page 2 of 2 GHI HMO Select, Inc. - Plan Code 6V Defective Pricing Questioned Costs Contract Year 2010 Self Family Plan's Reconciled Rates Audited Line 5 Rates Bi-weekly Overcharge To Annualize: March 31, 2010 Enrollment x 26 Pay Periods 26 26 Subtotal Amount Due FEHBP in 2010 $75,049 Contract Year 2011 Self Family Plan's Reconciled Rates Audited Line 5 Rates Bi-weekly Overcharge To Annualize: March 31, 2011 Enrollment x 26 Pay Periods Subtotal Amount Due FEHBP in 2011 $48,424 Total Defective Pricing Questioned Costs $254,603 Exhibit C GHI IL\IO Select, Inc. - Plan Code 6V Lost Investment Income Year 20 07 2008 2009 20 10 20 11 31 Ju1 20 12 T otal A udit Findings: Defective Pri cing $7 3.3 11 $57 ,8 19 $0 $75 ,049 $48 .424 $0 $254,603 To ta ls (pe r yea r) : $7 3.3 11 $57 ,8 19 $0 $75 ,049 $48 .424 $0 $254,603 Cumulative Totals: $7 3.3 11 $ 131, 130 $ 13 1.1 30 $206 , 179 $254,603 $ 254,603 $254,603 Average Annua l Interest Ra te : 5.5000% 4 .9375% 5.2500% 3.187 5% 2.5625 % 1.8 750% Intere st on Pri or Ye ars Findings: $0 $3, 6 20 $6 ,884 $4, 180 $5,283 $2,785 $22,752 Current Years Int erest: $2,0 16 $ 1.427 $0 $ 1.196 $6 20 $0 $5,2 59 Tota l Cum ulative Interest $2, 0 16 $5,047 $6 ,884 $5.376 $5,903 $2,785 $ 28, 011 Throu gh July 3 1. 20 12 Appendix S5 Water St reet. New York, New York lOC41-819C - EmblemHealth www.el"!'\b ll:!/l onei.Jlth co n> J uly J I. 2012 Chief Communi ty -Rated Audits Group U.S . Office of Perso nnel Management Office of the Inspector General 800 Cranberry Woods Drive, Suite 270 Cranbe rry Township, Penn sylvania 16066 R.C: Preliminary Audit Findings GHi HMO Plan Code 6V Contract Number CS 2655 0=_ Emblem Health is In agreement with the OIEce of Inspector General's eudit fmding::l for the GHl HMO Plan Cede 6V, as referenced in the Executive Summary, Report No. IC 6V·QO· 12..Q }0 issued on May 29, 2012. Please feel free to contact me shcu'd YO'.. require any additional information in regards to this audit. (0-_ ..:'In 1"' .., ""' x,o<,. ..." ..._ ,,.-. ,,, ._ _ « ....p ). ...-" .... , ... ... ~ ee,..,.,...,. .,' N~ .. v::........, ;:....--.."--u".- S.. ....... C...., .......... . lC ... { .....,. ~ .. ...",., <. £,.c _I _ ~" :;....... . . C......"" ·... L·_C ~" ._, ~ .. . , ........ . .. , . r, -,'M'" ~ _ .""""-
Audit of the Federal Employees Health Benefits Program Operations at GHI HMO Select, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2012-08-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)