oversight

Audit of the Federal Employees Health Benefits Program Operations at Union Health Service, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2017-05-10.

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
               UNION HEALTH SERVICE, INC.

                                             Report Number 1C-76-00-16-042
                                                     May 10, 2017


                                                                -- CAUTION --

This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public version may
contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. § 1905, and the Privacy Act,
5 U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of Information Act and made publicly available on
the OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version should not be further released unless authorized by the OIG.
              EXECUTIVE SUMMARY
                              Audit of the Federal Employees Health Benefits Program
                                      Operations at Union Health Service, Inc. 

Report No. 1C-76-00-16-042                                                                                                                           May 10, 2017


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

The primary objective of the audit                              This report identifies defective pricing for contract years 2012
was to determine if Union Health                                and 2013. Although there were findings related to defective
Service, Inc. (Plan) was in                                     pricing for contract year 2012, they did not result in a material
compliance with the provisions of its                           penalty. For contract year 2013, we identified defective
contract and the provisions of the                              pricing of $52,620, as well as $4,270 for lost investment
laws and regulations governing the                              income on the defective pricing overcharges calculated through
Federal Employees Health Benefits                               April 30, 2017. Additionally, we identified an understated
Program (FEHBP).                                                OPM MLR credit totaling $436,287 for contract year 2013.
                                                                Lastly, we determined that the Plan did not submit its
What Did We Audit?                                              pharmacy claims data in accordance with the requirements of
                                                                Carrier Letter 2014-18. Specifically, these issues were
Under Contract CS 1571, the Office                              questioned due to the following identified errors:
of the Inspector General (OIG)
performed an audit of the FEHBP                                 	 In contract year 2012, the Plan applied an incorrect step-up
operations at the Plan. We verified                                factor to the FEHBP rates.
whether the Plan met the Medical                                	 In contract years 2012 and 2013, the Plan erroneously
Loss Ratio (MLR) requirements                                      modified its reconciled rates with adjustments that were
established by the U.S. Office of                                  already captured in its proposed rates. It also did not
Personnel Management (OPM) for                                     provide sufficient support for its transplant benefit costs,
contract year 2013. We also                                        and it erroneously charged additional benefit costs for a
verified whether the Plan developed                                growth hormone therapy benefit, which was already
the FEHBP premium rates using                                      covered as part of the Plan’s base benefit package.
complete, accurate, and current data
for contract years 2012 and 2013.                               	 The Plan used an incorrect number of member months to
Our audit fieldwork was conducted                                  determine the 2013 office visit adjustment and other benefit
from June 13, 2016, through                                        variances loadings.
November 21, 2016, at the Plan’s
office in Chicago, Illinois, and in                             	 The Plan submitted incomplete pharmacy claims data for
our OIG offices.                                                   its 2013 MLR submission, which impacted the MLR
                                                                   numerator.

                                                                	 Finally, the 2013 MLR denominator was adjusted for the
                                                                   2013 defective pricing of $52,620.
 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                                               i
        This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                        information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                            ABBREVIATIONS


    CFR                            Code of Federal Regulations
    FEHBAR                         Federal Employees Health Benefits Acquisition Regulation
    FEHBP                          Federal Employees Health Benefits Program
    MLR                            Medical Loss Ratio
    OIG                            Office of the Inspector General
    OPM                            U.S. Office of Personnel Management
    Plan                           Union Health Service, Inc.
    PMPM                           Per Member Per Month
    SSSG                           Similarly-Sized Subscriber Group
    U.S.C.                         United States Code




                                                                       ii
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
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.................................................9


                 A. Defective Pricing .....................................................................................................9 


                 B. Lost Investment Income.........................................................................................15 


                 C. 2013 Medical Loss Ratio Credit Underpayment ...................................................16 


                 D. Pharmacy Claims Data Submission .......................................................................18 


                 EXHIBIT A (Summary of Defective Pricing Questioned Costs) 


                 EXHIBIT B (Defective Pricing Questioned Costs) 


                 EXHIBIT C (Lost Investment Income)


                 EXHIBIT D (Summary of Medical Loss Ratio Credit Adjustment) 


                 EXHIBIT E (Medical Loss Ratio Credit Adjustment) 


                 APPENDIX (Union Health Service, Inc.’s January 13, 2017 Response to the Draft 

                 Report)


                 REPORT FRAUD, WASTE, AND MISMANAGEMENT




 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
IV. MAJOR CONTRIBUTORS TO THIS REPORT
            I. BACKGROUND
This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at Union Health Service, Inc. (Plan). The audit was conducted pursuant to
the provisions of Contract CS 1571; 5 United States Code (U.S.C.) Chapter 89; and 5 Code of
Federal Regulations (CFR) Chapter 1, Part 890. The audit covered contract years 2012 and
2013, and was conducted at the Plan’s office in Chicago, Illinois.

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 the U.S.
Office of Personnel Management’s (OPM) Healthcare and Insurance Office. The provisions of
the Federal Employees Health Benefits Act are implemented by OPM through regulations
codified in 5 CFR Chapter 1, Part 890. Health insurance coverage is provided through contracts
with health insurance carriers who provide service benefits, indemnity benefits, or
comprehensive medical services.

In April 2012, OPM issued a final rule establishing an FEHBP-specific Medical Loss Ratio
(MLR) requirement to replace the similarly-sized subscriber group (SSSG) comparison
requirement for most community-rated FEHBP carriers (77 FR 19522). MLR is the proportion
of FEHBP premiums collected by a carrier that is spent on clinical services and quality health
improvements. The MLR for each carrier is calculated by dividing the amount of dollars spent
for FEHBP members on clinical services and health care quality improvements by the total
amount of FEHBP premiums collected in a calendar year. The MLR is important because it
requires health insurers to provide consumers with value for their premium payments by limiting
the percentage of premium dollars that can be spent on administrative expenses and profit. For
example, an MLR threshold of 85 percent requires carriers to spend 85 cents of every premium
dollar on claims and limits the amount that can be spent on administrative expenses and profit to
15 cents of every dollar.

The FEHBP-specific MLR rules are based on the MLR standards established by the Affordable
Care Act (P.L. 111-148) and defined by the U.S. Department of Health and Human Services in
45 CFR Part 158. In 2012, community-rated FEHBP carriers could elect to follow the FEHBP-
specific MLR requirements, instead of the SSSG requirements. Beginning in 2013, however, the
MLR methodology was required for all community-rated carriers, except those that are state-
mandated to use traditional community rating. State-mandated traditional community-rated
carriers continue to be subject to the SSSG comparison rating methodology.

Starting with the pilot program in 2012 and for all non-traditional community-rated FEHBP

                                                                        1                             Report No. 1C-76-00-16-042
 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
carriers in 2013, OPM required the carriers to submit an FEHBP-specific MLR. This FEHBP-
specific MLR calculation required carriers to report information related to earned premiums and
expenditures in various categories, including reimbursement for clinical services provided to
enrollees, activities that improve health care quality, and all other non-claims costs. If a carrier
fails to meet the FEHBP-specific MLR threshold, it must make a subsidization penalty payment
to OPM within 60 days of notification of amounts due.

Community-rated carriers participating in the FEHBP are subject to various Federal, state and
local laws, regulations, and ordinances. In addition, participation in the FEHBP subjects the
carriers to the Federal Employees Health Benefits Act and implementing regulations
promulgated by OPM.

The number of FEHBP contracts and members reported by the Plan as of March 31 for each
contract year audited is shown in the chart below.
                                                                                          FEHBP Contracts/Members
In contracting with community-                                                                   March 31
rated carriers, OPM relies on
carrier compliance with
                                                                     1,000
appropriate laws and regulations                                       900
and, consequently, does not                                            800
negotiate base rates. OPM                                              700
negotiations relate primarily to                                       600
the level of coverage and other                                        500
unique features of the FEHBP.                                          400
                                                                       300
The Plan has participated in the                200
FEHBP since 1975 and provides                   100

health benefits to FEHBP                          0
                                                            2012               2013
members in the Chicago Area. A              Contracts       549                 546
prior audit of the Plan covered             Members         955                 946

contract years 2007 through
2011. We determined that all prior Office of the Inspector General (OIG) audit issues 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 an Appendix to the report.



                                                                        2                            Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          METHODOLOGY
 OBJECTIVES

 The primary objective of this performance audit was to determine whether the Plan was in
 compliance with the provisions of its contract and the laws and regulations governing the
 FEHBP. Specifically, we verified whether the Plan met the MLR requirements established by
 OPM and paid the correct amount to the Subsidization Penalty Account, if applicable.
 Additional tests were also performed to determine whether the Plan was in compliance with the
 provisions of other applicable laws and regulations.

 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
                                                          FEHBP Premiums Paid to Plan
 believe that the evidence obtained
 provides a reasonable basis for our
                                                     $5.0
 findings and conclusions based on our               $4.5
 audit objectives.                                   $4.0
                                                                  Millions




                                                                                 $3.5
                                                                                 $3.0
 This performance audit covered contract                                         $2.5
                                                                                 $2.0
 years 2012 and 2013. For these years,                                           $1.5
 the FEHBP paid approximately $9.3                                               $1.0
                                                                                 $0.5
 million in premiums to the Plan.                                                $0.0
                                                                                               2012                       2013
                                                                             Revenue           $4.7                       $4.6
 The OIG’s audits of community-rated
 carriers are designed to test carrier
 compliance with the FEHBP contract,
 applicable laws and regulations, and the 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:


                                                                             3                        Report No. 1C-76-00-16-042
 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
          The rates charged to the FEHBP were developed in accordance with the Plan’s
           standard rating methodology and the claims, factors, trends, and other related
           adjustments were supported by complete, accurate, and current source documentation;
           and

          The FEHBP MLR calculations were accurate, complete, and valid; claims were
           processed accurately; appropriate allocation methods were used; and, that any other
           costs associated with its MLR calculations were appropriate.

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 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 June 13, 2016, through June 24, 2016, at the Plan’s
office in Chicago, Illinois. Additional fieldwork was completed through November 21, 2016, at
our offices in Jacksonville, Florida; Cranberry Township, Pennsylvania; and Washington, D.C.

METHODOLOGY

We examined the Plan’s MLR calculations and related documents as a basis for validating the
MLR. Further, we examined claim payments and quality health expenses to verify that the cost
data used to develop the MLR was accurate, complete, and valid. We also examined the
methodology used by the Plan in determining the premium in the MLR calculations. Finally, we
used the contract, the Federal Employees Health Benefits Acquisition Regulations (FEHBAR),
and the rate instructions to determine the propriety of the Plan’s MLR calculation.

To gain an understanding of the internal controls in the Plan’s claims processing system, we
reviewed the Plan’s claims processing policies and procedures and interviewed appropriate Plan
officials regarding the controls in place to ensure that claims were processed accurately. Other
auditing procedures were performed as necessary to meet our audit objectives.

The tests performed, along with the methodology, are detailed in the following charts by Medical
and Pharmacy claims:




                                                                        4                            Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                    Medical Claims Sample Selection Criteria/Methodology 

                                                                                                                                                     Results
                                                                                                    Sample
Medical Claims                Universe                Universe             Universe                                             Sample              Projected
                                                                                                  Criteria and
 Review Area                  Criteria               (Number)              (Dollars)                                             Type                 to the
                                                                                                      Size
                                                                                                                                                    Universe?
                                                                                               Judgmentally
                         Queried
                                                                                               selected 26
Coordination of          medical claims
                                                                                               claims greater
Benefits with            for members                                                                                         Judgmental                     No
                                                        claims                                 than or equal to
Medicare 2013            greater than or
                                                                                               $4,000 totaling
                         equal to age 65
                                                                                               $146,174
                         Queried
                                                                                               Selected all
                         medical claims
                                                                                               members;
Member                   for members
                                                     members;                                  claims totaling                     N/A                      N/A
Eligibility 2013         greater than or
                                                       claims                                            from
                         equal to
                                                                                               the universe
                         $12,000

                         Queried
                                                                                               Selected all
                         members
                                                                                               members;
Dependent                greater than or
                                                     members;                                  claims totaling                     N/A                      N/A
Eligibility 2013         equal to age 26
                                                       claims                                           from
                         designated as
                                                                                               the universe
                         dependent


                         Queried                                                               Selected all
                         medical claims                                                        members;
Deceased                                             members;
                         for members                                                           claims totaling                     N/A                      N/A
Member 2013
                         greater than or                                                                 from
                                                        claims
                         equal to age 83                                                       the universe

                         Queried                                                               Selected a
                         medical claims                                                        random sample
Medical Paper
                         with amount                                                           of 25 claims
Claims 2013                                                                                                                     Random                      No
                         paid not equal                 claims                                 using SAS EG;
                         to $0.00                                                              totaling $2,749




                                                                                5                            Report No. 1C-76-00-16-042
        This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                       information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
        Medical Encounter1 Claims Sample Selection Criteria/Methodology 

                                                                                                                                                         Results
                                                                                                           Sample
Medical Claims                    Universe                   Universe              Universe                                           Sample            Projected
                                                                                                         Criteria and
 Review Area                      Criteria                  (Number)               (Dollars)                                           Type               to the
                                                                                                             Size
                                                                                                                                                        Universe?
Medical                     Queried medical                                                            Selected all
Encounters -                encounters for                                                             members;
                                                              members;
Member                      amount paid                                                                claims totaling             N/A                         N/A
                                                               claims
Eligibility 2013            greater than $600                                                                  from the
                                                                                                       universe
                                                                                                       Selected
Medical                     Judgmental
                                                                                                       members;
Encounters -                sample of                         members;
                                                                                                       claims totaling             N/A                         N/A
Dependent                   dependents over                    claims
                                                                                                            from the
Eligibility 2013            the age 26
                                                                                                       universe
                                                                                                       Selected a
Medical
                            Full universe of                                                           sample of 9
Encounters -
                            medical                                                                    highest paid                Judgmental                  No
Paper Claims                                                   claims
                            encounters                                                                 claims; totaling
2013
                                                                                                       $8,712




       1
           An encounter is a clinical service rendered directly by the Plan’s staff and facilities.

                                                                                   6                            Report No. 1C-76-00-16-042
           This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                          information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     Pharmacy Claims Sample Selection Criteria/Methodology

                                                                                                                                                         Results
   Pharmacy
                                   Universe                                                          Sample Criteria                  Sample            Projected
 Claims Review                                              Universe            Universe
                                   Criteria                                                             and Size                       Type               to the
     Area                                                  (Number)             (Dollars)
                                                                                                                                                        Universe?
                                                                                                    Selected 26
                             Queried                                                                members; 36
                             members with                                                           claims with
Member                                                      members;
                             pharmacy claims                                                        amount paid                    Judgmental                  No
Eligibility 2013
                             greater than or                                                        greater than or
                                                              claims
                             equal to $1,000                                                        equal to $2,000
                                                                                                    totaling $96,876
                                                                                                    Selected 5
                                                                                                    members; sorted
                                                                                                    claims by highest
                             Queried                                                                dollar and
                             members greater                                                        removed
Dependent                    than or equal to                                                       duplicate patient
                                                            members;                                                               Judgmental                  No 
Eligibility 2013             age 26                                                                 IDs2 to sample
                                                              claims 
                             designated as                                                          the highest dollar
                             dependent                                                              paid claim for
                                                                                                    each patient ID; 7
                                                                                                    claims totaling
                                                                                                    $1,295
                             Queried                                                                Selected all
                             pharmacy claims                                                        members;
Deceased                                                    members;
                             for members                                                            claims totaling                     N/A                    N/A
Member
                             greater than or                                                                 from
                                                              claims
                             equal to age 83                                                        universe

       We also examined the rate build-up of the Plan’s 2012 and 2013 Federal rate submissions and
       related documents as a basis for validating the Plan’s standard rating methodology. We verified
       that the factors, trends, and other related adjustments used to determine the FEHBP premium
       rates were sufficiently supported by source documentation. We also 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.




       2
         The Plan re-submitted its pharmacy claims data during the audit because in 2013 it switched its system and the
       original claims submission only contained data from the new system. The revised data, which includes information
       from both the old and new systems, also contains two patient IDs for some members. This occurred because the
       patients (members) had different IDs within the two systems. Two members with two different patient IDs were
       captured within our sample, causing there to be five members but seven patient IDs, and therefore, also seven
       claims.
                                                                                   7                            Report No. 1C-76-00-16-042
           This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                          information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
Finally, we examined the Plan’s financial information and evaluated the Plan’s financial
condition and ability to continue operations as a viable ongoing business concern.




                                                                        8                            Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
III. AUDIT FINDINGS AND RECOMMENDATIONS

 A. DEFECTIVE PRICING                                                                                                               $52,620
      Carriers proposing rates to OPM are required to submit a Certificate of Accurate Pricing
                              certifying that the cost or pricing data submitted in support of the
        The Plan did not
                              FEHBP rates were developed in accordance with the requirements of
         have sufficient
                              48 CFR, Chapter 16 and the FEHBP contract. The Certificates of
        controls in place
                              Accurate Pricing that the Plan signed for contract years 2012 and
         to use accurate
                              2013 were defective. Although there were findings related to contract
            data in the
                              year 2012, they did not result in a material penalty. In accordance
            FEHBP’s
                              with federal regulations, the FEHBP is, therefore, due a rate reduction
             premium
                              for contract year 2013. Application of the defective pricing remedy
           calculations.
                              shows that the FEHBP is due a premium adjustment totaling $52,620
      for contract year 2013 (see Exhibit A).

            1) 2012

                  a) Reconciled Rates

                       Our review of the 2012 FEHBP rates determined that the Plan inappropriately
                       increased the 2012 reconciled rates for adjustments, totaling $       for the single
                       rate and $      for the family rate, that were already accounted for in the 2012
                       proposed rates. These adjustments were added to the 2012 proposed rates as a
                       result of the 2011 FEHBP reconciliation. Consequently, as the adjustments were
                       already captured in the 2012 proposed rates, they should not have been included
                       in the 2012 reconciled rates.

                       Plan Response:

                       The Plan did not state whether it agreed or disagreed with our finding in its
                       response. However, it claimed that there were no reconciliation adjustments
                       made in contract year 2012, and provided its 2012 premium based on
                       preliminary calculations. It demonstrated the amounts of $         and $
                       in Q2, the 2011 reconciliation amounts of $      and $      in Q3, and the sum
                       of these amounts of $        and $        in Q4 applied in the 2012 Rate
                       Proposal - Small Carriers, Attachment I. The Plan stated that the amounts in
                       Q4 are only used to help the Plan assess the overall proposed percentage


                                                                          9                            Report No. 1C-76-00-16-042
  This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                  information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     increase which might influence the decision toward applying a potential 

                     discount. 


                     OIG Comment:

                     The OIG disagrees with the Plan's response and our position has not changed
                     since the draft report. Per the Plan's 2012 reconciliation, the line 1 rates of
                     $        for the single rate and $        for the family rate included adjustments
                     of $     and $       respectively. The actual line 1 reconciled rates should have
                     been reported as $         single and $         family, which are the amounts
                     without the adjustments. Since these adjustments were added to the 2012
                     proposed rates as a result of the 2011 FEHBP reconciliation, these adjustments
                     should not be included in the 2012 reconciled rates.

               b) Step-Up Factor

                     The Plan also applied an incorrect step-up factor to the FEHBP’s rates. This error
                     occurred because the Plan could not accurately support its enrollment data for
                     single and family tiers. It provided an enrollment report that showed the total
                     membership for May 2011, but it was not broken into tiers. Therefore, we used
                     OPM’s Table One enrollment data, which included single and family enrollment,
                     to calculate our audited step-up factor. Our calculation resulted in a lower step-up
                     factor,     , than that used by the Plan,    , in its FEHBP rate calculation.

                     Plan Response:

                     The Plan disagrees with the findings because of the difference in the months of
                     enrollment values used in the calculation. It used the May 2011 values while
                     the OIG used the April 2011 values. The Plan claimed that the instructions do
                     not prescribe the use of April values, instead the instruction asks about the
                     source of the demographic assumptions, whether they are group specific or
                     apply to the whole community rated population.

                     OIG Comment:

                     We do not have an issue with the Plan using May 2011 enrollment data for the
                     2012 step-up factor calculation, as suggested by the Plan. The support provided
                     by the Plan in its response to the draft is the exact same report that the Plan
                     provided during the audit fieldwork. The enrollment report shows the total

                                                                        10                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     membership for May 2011, however, the report does not separate the data into the
                     single and family tiers that are used to calculate the 2012 step-up factor. After
                     discussing this issue with the Plan, the Plan provided an additional membership
                     report that showed the total subscribers. However, the report still does not
                     separate the subscribers into single and family contracts. Therefore, we used
                     OPM's 2011 Table One Report to determine the single and family contracts. The
                     variance between the Plan's        step-up factor and our      step-up factor is
                     immaterial. When applying our step-up factor of          in our audited rate
                     development, the questioned costs were $           , which is    percent of the total
                     subscription income. Although there is an immaterial difference, the Plan should
                     be able to produce documentation for the FEHBP's single and family tier
                     contracts.

               c) Transplant Benefit Support

                     The Plan did not provide support for its transplant per member per month
                     (PMPM) single rate of $        and family rate of $     . Consequently, we applied
                     a percent trend to documentation provided during a previous OPM OIG audit of
                     the Plan (Report #1C-76-00-12-006) to determine an audited single and family
                     cost for this benefit. Since the Plan cannot support its calculation and using its
                     amounts is in the FEHBP's favor, we applied the transplant benefit amounts to the
                     Plan's original amounts.

                     Plan Response:

                     The Plan did not suggest an adjustment to this finding from its original
                     numbers, and acknowledged that it overlooked updating the calculation from
                     the support given to the OIG during a prior audit.

                     OIG Comment:

                     Initially, our audited calculation was modified due to the lack of support for this
                     calculation. After reviewing the Plan's response, we removed the additional trend
                     of percent applied to the transplant PMPM in our transplant calculation. We
                     applied our 2012 step-up factors to the transplant PMPM.




                                                                        11                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
               d) Growth Hormone Therapy

                     We removed the growth hormone therapy PMPM single rate of $        and family
                     rate of $   from the FEHBP’s special benefit loadings because the benefit was
                     covered under the Plan’s prescription drug costs.

                     Plan Response:

                     The Plan disagrees with the adjustment for growth hormone therapy. It
                     claimed that it is not a redundant cost with its prescription drug costs.
                     Furthermore, it stated the growth hormone therapy related to this benefit
                     variance is neither self-administered nor dispensed to the patient by a
                     pharmacy, and it is a floor-stock medication administered intravenously by
                     medical professionals in its main clinic.

                     OIG Comment:

                     We have reviewed the Plan’s response and our position has not changed since the
                     issuance of the draft report. Per the 2012 FEHBP Plan Brochure, the growth
                     hormone is covered under the prescription drug benefit. We will continue to
                     question the inclusion of this charge in contract year 2012.

               2012 Conclusion

               We calculated our audited FEHBP rates by correcting the above noted exceptions. A
               comparison of our audited line 5 rates to the Plan's reconciled line 5 rates did not
               result in a material penalty for this contract year.

          2) 2013

               a) Reconciled Rates

                     Our review of the 2013 FEHBP rates determined that the Plan inappropriately
                     increased the 2013 reconciled rates for adjustments, totaling $       for the single
                     rate and $      for the family rate, that were already accounted for in the 2013
                     Proposal rates. These adjustments were added to the 2013 proposed rates as a
                     result of the 2012 FEHBP reconciliation. Consequently, as the adjustments were
                     already captured in the 2013 proposed rates, they should not be included in the
                     2013 reconciled rates.


                                                                        12                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     Plan Response:

                     The Plan agrees with our finding that the 2013 FEHBP rates were
                     inappropriately increased by 2013 reconciled rates for adjustments.

               b) Member Months

                     The Plan erroneously used 11,352 member months instead of the 11,625 member
                     months submitted in its proposal when determining the PMPM rates for the
                     FEHBP’s office visit copays and other benefit variances special benefit loadings.
                     Using the 11,352 member months, the Plan calculated a PMPM single and family
                     rate credit of $     and $     , respectively, related to the office visit copays.
                     However, we calculated an audited single and family rate credit of $          and
                     $     , respectively, using the 11,625 member months. Similarly, for the other
                     benefit variances loading, the Plan used 11,352 member months to calculate a
                     PMPM single and family cost of $          and $       , respectively. However, we
                     utilized 11,625 member months to derive an audited PMPM single and family
                     cost of $      and $      , respectively.

                     Plan Response:

                     The Plan did not state whether it agrees or disagrees with our finding. Instead,
                     it noted that the 11,827 member months that the OIG initially used in its
                     calculation were derived from all of its HMO members. It also pointed out that
                     the numerator of the PMPM calculation for the office visit copay shows 3,952
                     office visits is the data only for the FEHBP group, therefore, the denominator
                     should be 11,625, which reflects only the FEHBP portion.

                     Additionally, the Plan noted that the other benefit variance loadings were not
                     calculated with a numerator of actual experience and denominator of member
                     months. The PMPM amounts are carried forward from the support used in
                     prior audits and are only adjusted for the trend factors in 2012 and 2013.

                     OIG Comment:

                     We agree with the Plan’s response in applying only the FEHBP member months
                     in our denominator, therefore, we used the 11,625 member months for the office
                     visits. Our calculation of the other benefit variance were based on the filed rates
                     that were used for contract year 2012 and claims data provided by the Plan to

                                                                        13                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     determine the other benefit variance PMPM rates using the 11,625 member
                     months. We determined that the other benefit variance is a single rate of $
                     and a family rate of $     , instead of the Plan's single rate of $  and family
                     rate of $     .

               c) Transplant Benefit Support

                     The Plan did not provide support for its transplant PMPM rates of $       for single
                     and $      for family. Consequently, we used support that was provided during a
                     previous OPM OIG audit of the Plan (Report #1C-76-00-12-006) to determine an
                     audited single and family cost for this benefit. The Plan contended that there
                     should be no adjustment to the 2012 transplant PMPM within its draft response to
                     the 2012 Defective Pricing Finding. Therefore, we trended the 2011 PMPM by
                     percent and determined the 2013 transplant PMPM rates to be $        for single
                     and $      for family.

                     Plan Response:

                     The Plan did not state whether it agrees or disagrees with our finding. It
                     acknowledged that we used the same source except the 2011 rates should be
                     trended percent for 2013.

                     OIG Comment:

                     Initially, our audited calculation was modified due to the lack of support for this
                     calculation. After reviewing the Plan's response, we applied the percent trend to
                     the transplant PMPM for contract year 2013. Our audited calculation shows the
                     transplants rates are slightly higher than the Plan's reconciliation.

               d) Growth Hormone Therapy

                     We removed the growth hormone therapy PMPM single rate of $        and family
                     rate of $   from the FEHBP’s special benefit loadings because the benefit was
                     covered under the Plan’s prescription drug costs.

                     Plan Response:

                     The Plan disagrees with the adjustment for growth hormone therapy. It 

                     claimed that it is not a redundant cost with its prescription drug costs. 


                                                                        14                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                     Furthermore, it stated that the growth hormone therapy related to this benefit
                     variance is neither self-administered nor dispensed to the patient by a
                     pharmacy, and it is a floor-stock medication administered intravenously by
                     medical professionals in its main clinic.

                     OIG Comment:

                     We have reviewed the Plan’s response and our position has not changed since the
                     issuance of the draft report. Per the 2013 FEHBP Plan Brochure, the growth
                     hormone is covered under the prescription drug benefit. We will continue to
                     question the inclusion of this charge in contract year 2013.

               2013 Conclusion

               We calculated our audited FEHBP rates by correcting the above noted exceptions. A
               comparison of our audited line 5 rates to the Plan's reconciled line 5 rates show the
               FEHBP was overcharged by $52,620 in contract year 2013 (see Exhibit B).

    Recommendation 1

    We recommend the contracting officer require the Plan to fully comply with the OPM rate
    reconciliation instructions and all applicable regulations, to maintain original copies of all
    pertinent rating documents that support the calculations used in the rate development, and to
    eliminate repeated charges of benefits covered in the FEHBP benefit brochures.

    Recommendation 2

    We recommend that the contracting officer require the Plan to return $52,620 to the FEHBP
    for defective pricing in contract year 2013.

B. LOST INVESTMENT INCOME                                                                                                          $4,270

    In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
      The FEHBP is entitled     FEHBP is entitled to recover lost investment income on the
           to recover lost      defective pricing finding in contract year 2013. We
       investment income on     determined that the FEHBP is due $4,270 for lost investment
         the 2013 defective     income, calculated through April 30, 2017 (see Exhibit C). In
          pricing finding.      addition, the FEHBP is entitled to lost investment income for



                                                                        15                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
    the period beginning May 1, 2017, until all defective pricing finding amounts have been
    returned to the FEHBP.

    The 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 semi-annual cost of capital rates.

    Plan Response:

    The Plan did not respond to this finding in its response to the draft report.

    Recommendation 3

    We recommend that the contracting officer require the Plan to return $4,270 to the FEHBP
    for lost investment income, calculated through April 30, 2017. We also recommend that the
    contracting officer recover lost investment income on amounts due for the period beginning
    May 1, 2017, until all defective pricing finding amounts have been returned to the FEHBP.

C. 2013 MEDICAL LOSS RATIO CREDIT UNDERPAYMENT                                                                                 $436,287

    In order to assess the appropriateness of the Plan’s premium rates in 2013, the Plan was
    required to file an MLR under OPM’s MLR program. The MLR program replaced
    Similarly-Sized Subscriber Group requirements with an MLR threshold. Simply stated, the
    MLR is the ratio of FEHBP incurred claims (including expenses for health care quality
    improvement) to total premium revenue determined by OPM.

    For contract year 2013, OPM established an MLR threshold of 85 percent. Therefore, 85
    cents of every health care premium dollar must have been spent on health care expenses. If
    carriers met the MLR threshold, no penalty was due. In contract year 2013, OPM also
    created an MLR corridor from the established threshold of 85 percent to 89 percent. If the
    MLR was less than 85 percent, a carrier owed a subsidization penalty equal to the difference
    between the threshold and the carrier’s actual MLR, multiplied by the denominator of the


                                                                        16                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
    MLR. If the MLR is over 89 percent, the carrier received a credit equal to the difference
    between the carrier’s reported MLR and 89 percent, multiplied by the denominator of the
    MLR. This credit can be used to offset any future MLR penalty and is available until it is
    used up by the Plan or the Plan exits the FEHBP.

    The Plan calculated an unadjusted MLR of          percent for contract year 2013. Since this
    ratio exceeded the OPM established threshold of 89 percent, the Plan received an OPM credit
    of $3,014. However, during our review of the Plan’s MLR submission, we identified
    additional issues that resulted in an audited MLR of     percent, which was higher than that
    calculated by the Plan. Consequently, this audit determined that the Plan’s credit from OPM
    should be increased for contract year 2013. The specific issues that led to the additional
    credit include the following.

          1) Pharmacy Claims Data

               Our review of the Plan’s MLR submission
               determined that the dollar amount of the pharmacy                                      The Plan did not have
               claims data submitted to OPM OIG did not match                                      sufficient controls in place
               the amount used in the Plan's MLR numerator. Per                                       to ensure inclusion of
               Carrier Letter 2014-18, all 2013 MLR carriers                                       pharmacy claims data for
               must submit to the OIG the detailed FEHBP                                           its 2013 MLR submission.
               claims data used in its MLR calculations.

               The Plan stated that when it filed the MLR, it had used an allocation method for the
               pharmacy claims and did not use the actual pharmacy claims data. Furthermore, it
               was determined during the audit that the Plan’s pharmacy benefit manager failed to
               capture data from an old system when it switched to a new system in September
               2013. See “D. Pharmacy Claims Data Submission” below for further analysis.

               The Plan's FEHBP MLR submission used a claims amount of $                   . Once we
               determined that this amount did not match the claims totals submitted to the OIG, we
               requested that the Plan resubmit the actual claims data that should have been used in
               their MLR submission to OPM. This claims data was provided during our audit and
               upon our review of this data, we determined that the claims amount had increased to
               $          . This increase ultimately resulted in an increase to the Plan's MLR
               numerator of $         .




                                                                        17                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
          2) Defective Pricing

               As mentioned above, our audit identified a defective pricing finding for contract year
               2013 totaling $52,620. The 2013 Community Rating Guidelines state that the
               denominator of the FEHBP MLR calculation will be equal to the OPM supplied 2013
               premium income or carrier supplied 2013 premium income less any amount
               recovered from the carrier due to an audit. Therefore, we have removed the $52,620
               from the Plan's premium income, which in turn reduced the FEHBP MLR
               denominator.

    Conclusion

    We recalculated the Plan's 2013 MLR submission with the adjustments described above.
    The audited MLR calculation resulted in an increased OPM MLR credit of $436,287 (see
    Exhibits D and E).

    Plan Response:

    The Plan did not challenge the methodology described in the draft report, but stated that
    the MLR percentage should be adjusted based on the Plan's detailed responses. It claimed
    that, as a staff model plan, its allocations of medical costs provided by in-house salaried
    staff are relatively complicated, and the MLR calculation is not a simple total of paid
    claims. The Plan emphasized its appreciation for the auditors' work in carefully reviewing
    and understanding the allocations.

    OIG Comment:

    We agree with the Plan and have adjusted the value of the MLR credit underpayment section
    based on the responses and adjustments to the 2013 defective pricing issues.

    Recommendation 4

    We recommend that the contracting officer instruct OPM’s Office of the Actuary to increase
    the Plan’s 2013 MLR carryover credit by $436,287.

D. PHARMACY CLAIMS DATA SUBMISSION                                                                                        Procedural

    The Plan did not provide pharmacy claims data in accordance with the requirements of
    Carrier Letter 2014-18. This carrier letter required all 2013 MLR carriers to submit to the


                                                                        18                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
    OIG detailed FEHBP claims data used in its MLR calculations in the specified format.

    Because this data was not provided in a timely manner, we were not able to determine until
    the audit that the Plan’s data submitted to the OIG did not match the values that the Plan used
    in its 2013 MLR calculation. As stated previously, when the Plan filed the MLR with OPM,
    it used an allocation method to determine the pharmacy claims to include as part of the
    MLR’s incurred claims cost and did not use the actual pharmacy claims data. Furthermore,
    we determined that the Plan’s pharmacy benefit manager failed to capture data from an old
    system when it switched to a new system in September 2013. Once the correct claims
    information was provided, it ultimately resulted in an adjustment to the Plan’s MLR
    percentage, which increased the MLR credit it was due.

    Plan Response:

    The Plan did not respond to this finding in its response to the draft report.

    Recommendation 5

    We recommend that the contracting officer require the Plan to comply with the annual MLR
    carrier letter, which specifies required claims data submissions to the OIG.




                                                                        19                           Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
               information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                       EXHIBIT A

                                Union Health Service, Inc.
                        Summary of Defective Pricing Questioned Costs



Defective Pricing Questioned Costs


       Contract Year 2013                                                                                                 $52,620


Lost Investment Income                                                                                                      $4,270


Total Questioned Costs                                                                                                    $56,890




                                                                                                          Report No. 1C-76-00-16-042
 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                       EXHIBIT B

                                           Union Health Service, Inc.
                                       Defective Pricing Questioned Costs


Contract Year 2013
                                                                                                   Self          Family
FEHBP Line 5 - Reconciled Rate                                                                 $                 $
FEHBP Line 5 - Audited Rate                                                                    $                 $

Bi-weekly Overcharge                                                                             $                 $

To Annualize Overcharge:
   March 31, 2013 enrollment
   Pay Periods                                                                                   26                26
Subtotal                                                                                       $18,179           $34,441

Total Defective Pricing Questioned Costs                                                                                            $52,620




                                                                                                          Report No. 1C-76-00-16-042
 This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                 information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                              EXHIBIT C

                                                     Union Health Service, Inc. 

                                                      Lost Investment Income 




Year                                                     2013              2014             2015               2016           30-Apr-17                 Total
Audit Findings:

1. Defective Pricing                                   $52,620              $0                $0                $0                   $0               $62,620



Totals (per year):                                     $52,620            $0                $0                $0                   $0                 $52,620
Cumulative Totals:                                     $52,620          $52,620           $52,620           $52,620              $52,620              $52,620

Avg. Interest Rate (per year):                        1.5625%           2.0625%          2.2500%            2.1875%             2.5000%

Interest on Prior Years Findings:                          $0            $1,085            $1,184            $1,151                $439                $3,859

Current Years Interest:                                  $411               $0                $0                $0                   $0                 $411

Total Cumulative Interest Calculated
Through April 30, 2017:                                  $411            $1,085            $1,184            $1,151                $411                $4,270




                                                                                                                 Report No. 1C-76-00-16-042
        This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                        information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a
                                                     EXHIBIT D

                                          Union Health Service, Inc.
                               Summary of Medical Loss Ratio Credit Adjustment


    Contract Year 2013


    Credit Calculated                                                                                             $439,301


    Credit Received                                                                                                 $3,014


    Total Credit Adjustment Due to Plan                                                                           $436,287




                                                                                                         Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                                      EXHIBIT E

                                                       Union Health Service, Inc.
                                                  Medical Loss Ratio Credit Adjustment



                                                                                                                   Plan                                 Audited

2013 FEHBP MLR Lower Threshold (a)                                                                                 85%                                    85%
2013 FEHBP MLR Upper Threshold (b)                                                                                 89%                                    89%



Incurred Claims (Medical and Pharmacy)
Quality Health Improvement Expenses
MLR Numerator

Premium Income                                                                                                $4,630,617                             $4,630,617
Less: Federal and State Taxes and Licensing or Regulatory Fees
Less: 2013 RBA Finding                                                                                              $0                                 $52,620
MLR Denominator (c)

FEHBP Unadjusted Medical Loss Ratio (d)


Credit Calculation (If (d) is greater than (b), ((d-b)*c)                                                        $3,014                                $439,301
Credit Adjustment Due To Plan                                                                                                                          $436,287




                                                                                                                     Report No. 1C-76-00-16-042
This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary information that may be
                                       protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
                                                         APPENDIX
January 13, 2017

                                               Plan 76 Response to Draft Audit Report

Our responses to the draft report are inserted below using red-font text immediately following the black text
pasted from the draft report. We have not responded to conclusions (e.g., lost investment income) or
recommendation that are driven by details to which we’ve responded.

In some cases, we think there was lack of clarity regarding the supporting source and we are now identifying
what we think addresses the issue. In other cases, you didn’t have the supporting information (we weren’t aware
of the issue) and the accompanying files should correct that.

We especially want to acknowledge our appreciation for the manner in which this audit was conducted, with
courtesy and professionalism. In particular, we are grateful for your inclusion of the 2013 contract year in the
audit to help us confirm (or correct) issues related to the MLR calculation (complicated by the nature of a staff-
model organization with allocated direct-service costs in the numerator). Working with the audit team has given
us confidence in our approach with the relatively near MLR methodology as we go forward

2012

Our review of the 2012 FEHBP rates determined that the Plan inappropriately increased the 2012 reconciled
rates for adjustments, totaling $   for the single rate and $  for the family rate, that were already accounted
for in the 2012 proposed rates. These adjustments were added to the 2012 proposed rates as a result of the 2011
FEHBP reconciliation. Consequently, as the adjustments were already captured in the 2012 proposed rates, they
should not be included in the 2012 reconciled rates.

Deleted by OIG - Not Relevant to the Final Report we see no redundant reconciliation adjustment in the 2012.
Deleted by OIG - Not Relevant to the Final Report The amounts shown there of $                and $        , single
and family, respectively, are calculated without regard to any reconciliation adjustment and they are then carried
to Q2 of Attachment I in our 2012 proposal. The 2011 reconciliation amounts of $          and $      are properly
reported in Q3 of Attachment I. Deleted by OIG - Not Relevant to the Final Report although they do properly
appear in Q4 due to Attachment I’s internal calculation. The amounts on rows 199 and 200 may look like “the
bottom line”, but they are only used to help us assess the overall proposed percentage increase which might
influence our decision toward applying a potential discount.

The Plan also applied an incorrect step-up factor to the FEHBP’s rates. This error occurred because the Plan
incorrectly used its own 2011 enrollment data to derive the factor instead of the 2011 Table 1 enrollment data
submitted to OPM. Therefore, we used the Table 1 enrollment data to calculate our audited step-up factor. Our
calculation resulted in a lower step-up factor (      ) than that used by the Plan (     ) in its FEHBP rate
calculation. Consequently, we used our audited step-up factor in deriving the FEHBP’s audited rates.

We disagree with the findings. The difference between OIG’s factor (          ) and our factor (   ) is entirely
related to OIG’s usage of the available enrollment numbers in April, 2011, (the Table 1 amounts) and our usage
of the May, 2011, enrollment numbers

                                      Deleted by OIG - Not Relevant to the Final Report


                                                                                                            Report No. 1C-76-00-16-042
   This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                   information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
 The instructions do not prescribe usage of April values, but Q. 32 through Q. 35 in the instructions asks about
the source of the demographic assumptions, whether they are group specific or apply to the whole community
rated population.


                                      Deleted by OIG - Not Relevant to the Final Report




Additionally, the Plan did not provide support for its transplant per member per month (PMPM) single rate of
$      and family rate of $    . Consequently, we used support that was provided during a previous Office of
Inspector General (OIG) audit (Report #1C-76-00- 12-006) to determine an audited single and family cost for
this benefit. Using this support, we derived a PMPM single rate of $      and a family rate of $  .

Although this draft adjustment would be “in our favor”, we suggest making no adjustment. Deleted by OIG -
Not Relevant to the Final Report Yes, we overlooked updating the calculation from the support given to a
prior auditor Deleted by OIG - Not Relevant to the Final Report

Furthermore, we removed the growth hormone therapy PMPM single cost of $           and family cost of $
from the FEHBP’s special benefit loadings because the benefit was covered under the Plan’s prescription drug
costs.

We disagree with the adjustment for growth hormone therapy; it is not a redundant cost with our prescription
drug costs. The growth hormone therapy related to this benefit variance is neither self-administered nor
dispensed to the patient by a pharmacy. It is a floor-stock medication administered intravenously by medical
professionals in our main clinic.




                                      Deleted by OIG - Not Relevant to the Final Report




                                                                                                            Report No. 1C-76-00-16-042
   This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                   information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a
2013

Our review of the 2013 FEHBP rates determined that the Plan inappropriately increased the 2013 reconciled
rates for adjustments, totaling $   for the single rate and $   for the family rate, that were already accounted
for in the 2013 Proposal rates. These adjustments were added to the 2013 proposed rates as a result of the 2012
FEHBP reconciliation. Consequently, as the adjustments were already captured in the 2013 proposed rates, they
should not be included in the 2013 reconciled rates.

We agree.

The Plan also erroneously used 11,352 member months instead of the 11,827 member months submitted in its
proposal when determining the PMPM rates for the FEHBP’s office visit copays and other benefit variances
special benefit loadings. Using the 11,352 member months, the Plan calculated a PMPM single and family rate
credit of $      and $     , respectively, related to the office visit copays. However, we calculated an audited
single and family rate credit of $      and $     , respectively, using the 11,827 member months. Similarly, for
the other benefit variances loading, the Plan used 11,352 member months to calculate a PMPM single and family
cost of $      and $       , respectively. However, we utilized 11,827 member months to derive an audited
PMPM single and family cost of $         and $      , respectively.

Deleted by OIG - Not Relevant to the Final Report The 11,827 member months that you used are derived
from all of our HMO members, Deleted by OIG - Not Relevant to the Final Report The numerator of your
PMPM calculations for the office visit copay shows 3,952 office visits. The pivot table source of that number
is properly filtered to include only FEHBP group. Deleted by OIG - Not Relevant to the Final Report I
believe your calculated visits per month (which drives the calculated loading) should use 3,952 in the numerator
and 11,625 in the denominator (using your source but only included the FEHBP portion).

The other benefits variance loadings Deleted by OIG - Not Relevant to the Final Report are not calculated
with a numerator of actual experience Deleted by OIG - Not Relevant to the Final Report and a denominator
of member months. The PMPM amounts are carried forward from the support used in prior audits and are only
adjusted for the trend factor ( % in 2012 and the same for 2013). Deleted by OIG - Not Relevant to the Final
Report

Additionally, the Plan did not provide support for its transplant PMPM single rate of $     and family rate of
$     . Consequently, we used support that was provided during a previous OIG audit (Report #1C-76-00-12-
006) to determine an audited single and family cost for this benefit. Using this support, we derived a PMPM
single rate of $    and a family rate of $   .

Deleted by OIG - Not Relevant to the Final Report You have correctly referenced the 2011 audit Deleted by
OIG - Not Relevant to the Final Report Our numbers are the same except the 2011 rates should be trended
 % Deleted by OIG - Not Relevant to the Final Report

Finally, we removed the growth hormone therapy PMPM single cost of $       and family cost of $      from the
FEHBP’s special benefit loadings because the benefit was covered under the Plan’s prescription drug costs.

As described above for the 2012 rates, the growth hormone therapy related to this benefit variance is not self-
administered nor dispensed to the patient by a pharmacy. It is a floor-stock medication administered
intravenously by medical professionals in our main clinic.




                                                                                                            Report No. 1C-76-00-16-042
   This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                   information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a
1. Medical Loss Ratio Credit Underpayment $542,488

We do not challenge the methodology described in this MLR section of the draft report (not shown in this
response document), but the value should be adjusted based on the above detailed responses. We should also
mention that, as a staff model plan, the allocations of medical costs provided by in-house salaried staff are
relatively complicated. The numerator of the MLR calculation is not a simple total of paid claims. We again
want to emphasize our appreciation for the auditors’ work in carefully reviewing and understanding the
allocations (similar to those used in our Medicare cost reports).




                                     Deleted by OIG - Not Relevant to the Final Report




                                                                                                           Report No. 1C-76-00-16-042
  This report is non-public and should not be further released unless authorized by the OIG, because it may contain confidential and/or proprietary
                  information that may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a
                                                                                                                         



                                       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-76-00-16-042

                                                                -- CAUTION --
 This report has been distributed to Federal officials who are responsible for the administration of the subject program. This non-public version may
contain confidential and/or proprietary information, including information protected by the Trade Secrets Act, 18 U.S.C. § 1905, and the Privacy Act, 5
U.S.C. § 552a. Therefore, while a redacted version of this report is available under the Freedom of Information Act and made publicly available on the
    OIG webpage (http://www.opm.gov/our-inspector-general), this non-public version should not be further released unless authorized by the OIG.