oversight

Audit of the Federal Employees Health Benefits Program Operations at UPMC Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2011-07-27.

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

                                                                           U.S. OFFI CE OF PERSONNEL MANAGEMENT
                                                                                 OFFI CE OF THE INSPECTOR GENERAL
                                                                                                   OFFI CE OF AUD ITS




Final Audit Report
S ubject:

            Audit of the Federal Employees Health Benetits
             Program Opemtions at UPMC Health Plan


                                                      Report No. l C-8W-OO-II-007

                                                      Date: Ju ly 27 , 201 1




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                                UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT
                                                    Washinglon. DC 20415

  Office or the
Inspector General




                                                  AUDIT REPORT



                                         Federal Employees Health Benefils Program 

                                     COIl1Plunity·Ratcd tle~tllb Maintenance Organization 

                                                      Ul)M C Health Phm 

                                           Contract Nu mber 2856· Pl a n Code 8W 

                                                   Pittsburgh, Penn sylvllnia 




                            Report No. I C-8W-OO-II-007                    Date:   7 12711 1




                                                                       Mi chael R. Esser'
                                                                       Assistant Inspec.or Ge neral
                                                                          for Audils




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                              UNITED STATES OFFICE OF PERSONNEL MA NAGEMENT 

                                                        Was)lI ngIOfl, DC 20415 



   Office of lltt
inspel:\or General




                                             EXECUTIVE SUMMARY 





                                   Ft'dcra l Employct·s Health Benefils Program 

                                Community- Rated Health Maint e n~,"ce Orglmiz:lfion 

                                                 UI-M e Health Plan 

                                      Contract Number 2856 - Ill ~tn Cod e 8 \V 

                                              Pittsburgh, Pennsy lvania 




                     Reporl Nu. l C -8\ V-OO- II -007                         Oa t<: 7/27/ 11


       The Oflicc o r lhe Inspector General perfo rmed an aud it o r lhe Federal Employees Il calth Bene fits
       Prog.mm (FE HBP) operations a1 UPMC I-Iealth Plan (P lan). The audit covered contract years
       2007 through 20 10 and \vas conducted at the Plan" s o flicc in Pittsburgh. Pennsylvania.
       Addit ional field work was perfonncd at our o lTice in Cranbcny Township. Pennsylvani a. We
       found that the FE J-I BP rates were deve loped in acco rdance with the app licab le laws. regulations.
       and the Office o f Personnel Management' s rating instructions for the years audited.

       HO\vcver, durin g O llf review of the Plan 's FE HBP claims data. we found that lhc Plan hud i) paid
       for no n ~e o ve red benefi ts; ii) inappropriately unbundled cl aims for bill ing; and, iii) inadequatel y
       mo nito red coordinalion of benefits for enrollees with Medicare coverage. The monetary impact
       o fthc se findings was not signifi cant eno ugh to questio n the costs; howevcr. they represe nt
       procedural isslies we believe need to be addressed by the Plan.




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                                                         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

     Claims Review ................................................................................................................. 5

     1. Payment of Non-covered Services ............................................................................... 5

     2. Incorrect Unbundling of Claims .................................................................................. 6

     3. Coordination of Benefits .............................................................................................. 7

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 9

     Appendix (UPMC’s May 17, 2011, response to the draft report)
                     I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at UPMC Health Plan (Plan). The audit covered contract years 2007 through 2010 and was
conducted at the Plan’s office in Pittsburgh, Pennsylvania. The audit was conducted pursuant to
the provisions of Contract CS 2856; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations
(CFR) Chapter 1, Part 890. The audit was performed by the Office of Personnel Management’s
(OPM) Office of the Inspector General (OIG), as established by the Inspector General Act of
1978, as amended.

Background

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

Community-rated carriers participating in the FEHBP are subject to various federal, state and
local laws, regulations, and ordinances. While most carriers are subject to state jurisdiction,
many are further subject to the Health Maintenance Organization Act of 1973 (Public Law 93-
222), as amended (i.e., many community-rated carriers are federally qualified). In addition,
participation in the FEHBP subjects the carriers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The FEHBP should pay a market price                          FEHBP Contracts/Members
rate, which is defined as the best rate                             March 31

offered to either of the two groups closest         20,000
in size to the FEHBP. In contracting with           18,000
community-rated carriers, OPM relies on             16,000

carrier compliance with appropriate laws            14,000
                                                    12,000
and regulations and, consequently, does
                                                    10,000
not negotiate base rates. OPM                        8,000
negotiations relate primarily to the level           6,000
of coverage and other unique features of             4,000
the FEHBP.                                           2,000
                                                        0
                                                             2007     2008     2009     2010
The chart to the right shows the number                      8,969    7,453    7,504    7,348
                                               Contracts
of FEHBP contracts and members                 Members       19,210   14,797   14,420   13,878
reported by the Plan as of March 31 for
each contract year audited.

                                                1
The Plan has participated in the FEHBP since 2000 and provides health benefits to FEHBP
members in Allegheny, Armstrong, Beaver, Bedford, Blair, Butler, Cambria, Cameron, Clarion,
Clearfield, Crawford, Elk, Erie, Fayette, Forest, Greene, Indiana, Jefferson, Lawrence, McKean,
Mercer, Potter, Somerset, Venango, Warren, Washington, and Westmoreland counties in
Pennsylvania.

The last audit of the Plan was conducted in 2007 and covered contract years 2005 and 2006.
That audit questioned $5,413,611 for defective pricing and lost investment income. All issues
related to that audit have been resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. A draft report was also provided to the Plan for review and
comment. The Plan’s comments were considered in the preparation of this report and are
included, as appropriate, as the Appendix.




                                                 2
                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                         $90
                                                                      $80
auditing standards. Those standards require that                      $70




                                                       Millions
we plan and perform the audit to obtain                               $60
                                                                      $50
sufficient, appropriate evidence to provide a                         $40
reasonable basis for our findings and conclusions                     $30
based on our audit objectives. We believe that                        $20
                                                                      $10
the evidence obtained provides a reasonable basis                      $0
for our findings and conclusions based on our                               2007    2008    2009      2010

audit objectives.                                                 Revenue   $83.4   $71.2   $71.7     82.3


This performance audit covered contract years 2007 through 2010. For contract years 2007
through 2010, the FEHBP paid approximately $308.6 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 performed at the Plan’s office in Pittsburgh, Pennsylvania, during
December 2010. Additional audit work was completed at our offices in Cranberry Township,
Pennsylvania.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was accurate, complete, and valid. In addition, we examined the rate
development documentation and billings to other groups, such as the SSSGs, to determine if the
market price was actually charged to the FEHBP. Finally, we used the contract, the Federal
Employees Health Benefits Acquisition Regulations (FEHBAR), and OPM’s Rate Instructions to
Community-Rated Carriers to determine the propriety of the FEHBP premiums and the
reasonableness and acceptability of the Plan’s rating system.

To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system’s policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.

To test the Plan’s compliance with the FEHBP health benefit provisions, we selected and
reviewed a judgmental sample of claims for contract years 2007 through 2010. First, we
determined the birth year required for Medicare eligibility. Next, we ran queries on the actual
experience claim lines for each contract year and isolated the claims by the members’ date of
birth. Then, we selected claims from the results based upon a dollar value equal to or greater
than $15,000. As a result, this audit included a sample for 2007 contract year of 13 claims from
573,826 claim lines, a sample for 2008 of 15 claims from 591,113 claim lines, a sample for 2009
of 10 claims from 598,141 claim lines, and a sample for 2010 of 12 claims from 543,930 claim
lines. The results from the various samples were not projected.




                                                 4
              III. AUDIT FINDINGS AND RECOMMENDATIONS

Premium Rate Review

Our audit showed that the Plan’s rating of the FEHBP was in accordance with the applicable
laws, regulations, and the OPM rating instructions to carriers for contract years 2007 through
2010.

Claims Review

Plans participating in the FEHBP are required to provide back-up copies of claims databases for
audit purposes. We reviewed the Plan’s FEHBP claims data for contract years 2007 through
2010. We ran queries and reviewed a sample of claims related to hospital, physician, out-of-area,
prescription drugs, injectible drugs, and large claims cost. We also reviewed the Plan’s FEHBP
claims database for evidence of payment of non-covered benefits, for evidence of incorrect
unbundling of claims, and for evidence of coordination of benefits monitoring. We found the
following in our review:

1. Payment of Non-Covered Services

   The FEHBP benefit brochures for 2007 through 2010 state that elective abortions and
   biofeedback claims are not covered benefits. Our review of the FEHBP claims determined
   that non-covered elective abortion and biofeedback claims were paid for contract years 2007
   through 2010. The amount of the non-covered claims was not significant enough to affect
   the final 2007 through 2010 audited rates. However, the Plan’s claim monitoring system
   should be more effective in identifying and removing non-covered claims before any payment
   is made. The Plan stated that it reconfigured its claims adjudication system to catch the
   elective abortion claims in November 2009 and that it is in the process of reconfiguring for
   the biofeedback claims.

   Plan’s Comments (See Appendix):

   The Plan states that it has configured its claims processing system to deny elective abortion
   and biofeedback claims.

   OIG’s Response to the Plan’s Comments:

   We acknowledge the Plan’s stated implementation of corrective action and will determine if
   the changes have been adequately implemented during our next audit of the Plan.




                                                5
   Recommendation 1

   The Plan has implemented corrective actions to address the finding. No further action is
   needed at this time.

2. Incorrect Unbundling of Claims

   Medical services provided to patients are identified by Current Procedural Terminology
   (CPT) codes. When claims are electronically submitted for payment they will contain CPT
   codes associated with the services being billed. In most cases, services are billed as
   individual line items. However, some services are combined, or bundled, into a single CPT
   code. This is done to recognize the fact that some services, such as blood panels, can be done
   at the same time, and the cost of billing them separately does not accurately reflect the actual
   effort it took to provide the services. For theses services, the providers are to submit claims
   under the bundled CPT code. Our review of the FEHBP claims data found that claims were
   inappropriately unbundled in contract years 2007 and 2008 for CPT code 80069 (Renal
   Function Panel) and CPT code 80051 (Electrolyte Panel). There were no results for contract
   years 2009 and 2010. The Plan explained that it went through system updates in October
   2009 for Medicare products and April 2008 for commercial products to capture instances of
   unbundling, and to reimburse based upon the lab panels and/or deny when billed
   inappropriately. All claims in question occurred before the Plan’s system updates and we did
   not find any inappropriately unbundled claims after 2008. The claims totals in question for
   2007 and 2008 were not significant enough to affect the final 2007 and 2008 premiums.
   However, the Plan should continue to take the necessary precautions to verify claims are
   bundled appropriately.

   Plan’s Comments (See Appendix):

   The Plan states that on April 20, 2008, and October 4, 2009, updated versions of
                             were implemented in the claim processing system. These versions
   include lab panel bundling logic. Prior to this, the logic did not meet standards, was outdated
   and was removed in order to prevent inappropriate claim denials.

   In addition, the Plan states that                    is a new code-editing product provided by
                       The Plan has targeted to replace               with                     in
   January 2012.                       includes identical lab panel bundling logic; however, the
   application is more flexible and is capable of capturing the coding/bundling scenarios
   identified during this audit.

   OIG’s Response to the Plan’s Comments:

   We acknowledge the Plan’s stated intention to implement corrective action and will
   determine if the changes have been adequately implemented during our next audit of the
   Plan.


                                                6
   Recommendation 2

   The Plan has taken steps to address the finding, and has stated their intention to implement
   additional steps to fully resolve the finding. We recommend that the contracting officer
   require the Plan to continue to take the necessary precautions to verify that the claims are
   being bundled appropriately.

3. Coordination of Benefits

   When enrollees of the Plan have other insurance coverage, the Plan is responsible for
   coordination of benefits. Coordination of benefits involves identifying the other insurance
   coverage, making a determination as to who is the primary payer of benefits versus the
   secondary payer, and making sure the claims are paid accordingly. One of the most frequent
   instances of other insurance coverage is when an enrollee is covered by Medicare. We tested
   a sample number of claims for FEHBP enrollees who were also enrolled in Medicare to
   determine if the Plan had identified Medicare as the primary payer and correctly coordinated
   the payment of benefits for these enrollees.

   To test the Plan’s compliance with the FEHBP health benefit provisions, we selected and
   reviewed a judgmental sample of claims for contract years 2007 through 2010. First, we
   determined the birth year required for Medicare eligibility. Next, we ran queries on the actual
   experience claim lines for each contract year and isolated the claims by the members’ date of
   birth. Then, we selected claims from the results based upon a dollar value equal to or greater
   than $15,000. As a result, this audit included a sample for the 2007 contract year of 13
   claims from 573,826 claim lines; a sample for 2008 of 15 claims from 591,113 claim lines; a
   sample for 2009 of 10 claims from 598,141 claim lines; and a sample for 2010 of 12 claims
   from 543,930 claim lines. The results from the various samples were not projected to the
   entire population.

   From the 2007 sample selection, 7 of the 13 identified medical claims, amounting to
   $180,792, were not coordinated. Instead of the Centers for Medicare and Medicaid Services
   (CMS) paying primary, the Plan paid primary, and the claims were never adjusted. As a
   result, the uncoordinated claims totals were removed from the rate development in 2007. The
   claims totals were not significant enough to affect the 2007 premium. However, the Plan
   should make the appropriate adjustments to properly coordinate these claims.

   From the 2008 sample selection, 11 of the 15 identified medical claims, amounting to
   $278,248, were not coordinated. Again, the Plan paid as primary when CMS should have
   been the primary payer and the claims were never adjusted. As a result, the uncoordinated
   claims were removed from the rate development in 2008. The claims totals were not
   significant enough to affect the 2008 premium. However, the Plan should make the
   appropriate adjustments to properly coordinate these claims.

   From the 2009 sample selection, 7 of the 10 identified medical claims, amounting to
   $165,127, were not coordinated. As a result, the Plan paid the claims as the primary payer

                                                7
and never coordinated the claims with CMS. We removed the uncoordinated claims from the
rate development in 2009. While the claims totals were not significant enough to affect the
2009 premium, the Plan should make the appropriate adjustments to properly coordinate
these claims.

From the 2010 sample selection, all of the identified medical claims were coordinated or
adjusted for coordination.

Plan’s Comments (See Appendix):

The Plan states that currently a monthly report is extracted from its data warehouse of
members turning age 65 and other Medicare coverage for these individuals is researched. By
prospectively identifying other coverage, coordination of benefits is processed accurately.

In 2010, new logic for the COB overpayment report was implemented. The report identifies
claims that were paid as primary and subsequent COB was identified. This report has created
an effective tool for reporting claim overpayments.

OIG’s Response to the Plan’s Comments:

We acknowledge the Plan’s stated implementation of corrective action and will determine if
the changes have been adequately implemented during our next audit of the Plan.

Recommendation 3

The Plan has implemented actions to correctly monitor coordination of benefits. No further
action is needed regarding this issue. However, we recommend that the contracting officer
require the Plan to make the appropriate adjustments for the uncoordinated claims we
identified in 2007, 2008 and 2009.




                                            8
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                   , Auditor-In-Charge

                  , Lead Auditor

                 , Lead Auditor
   _______________________________________________________________________

                  , Chief

                 , Senior Team Leader




                                         9
Appendix