Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations at GHI HMO Select, Inc.

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)

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

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

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'" ~ _ .""""-