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

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 2013-09-23.

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

U.S. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERAL
OFFICE OF AUDITS

Final Audit Report
Subject:

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

Report No. 1C-8W-00-13-040

Date: September 23, 2013

-- CAUTION --
This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit
report may contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available
under the Freedom of Information Act and made available to the public on the OIG webpage, caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
AUDIT REPORT

Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
UPMC Health Plan
Contract Number CS 2856-A - Plan Code 8W
Pittsburgh, Pennsylvania

Report No. 1C-8W-00-13-040 Date: September 23, 2013

Michael R. Esser
Assistant Inspector General
for Audits

Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
UPMC Health Plan
Contract Number CS 2856-A - Plan Code 8W
Pittsburgh, Pennsylvania

Report No. 1C-8W-00-13-040 Date: September 23, 2013

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at UPMC Health Plan (Plan). The audit was conducted in
the Plan’s Pittsburgh, Pennsylvania offices and covered contract year 2011. We found that the
FEHBP rates were developed in accordance with applicable laws, regulations, and the Office of
Personnel Management’s rating instructions for the year audited.

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CONTENTS

Page

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

I. INTRODUCTION AND BACKGROUND..................................................................... 1

II. OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
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 year 2011 . The audit was conducted
pursuant to the provisions of Contract CS 2856-A; 5 U.S .C. Chapter 89; and 5 Code of Federal
Regulations (CFR) Chapter 1, Prui 890. The audit was perf01med 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 ru·e implemented by OPM through regulations codified in Chapter 1, Prui 890 of
Title 5, CFR. Health insurance coverage is provided through contracts with health insurance
caniers who provide service benefits, indemnity benefits, or comprehensive medical services.

Community-rated cruTiers pruiicipating in the FEHBP ru·e subj ect to vru·ious federal, state and
local laws, regulations, and ordinances. While most caniers ru·e subject to state jurisdiction,
many ru·e fiuiher subject to the Health Maintenance Organization Act of 1973 (Public Law 93
222), as runended (i.e., many cormmmity-rated caniers ru·e federally qualified). In addition,
pruiicipation in the FEHBP subjects the cruTiers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.

The FEHBP should pay a mru·ket price rate, FEHBP Contracts/Members
March 31
which is defined as the best rate offered to
either of the two groups closest in size to
the FEHBP. In conu·acting with
cormnunity-rated cruTiers, OPM relies on
canier compliance with appropriate laws
and regulations and, consequently, does not
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and
other lmique fe atures of the FEHBP.

The cha1i to the right shows the number of
FEHBP conu·acts and members reported by
the Plan as ofMru·ch 31, 201 1.

The Plan has pruiicipated in the FEHBP since Januruy 1, 2000 and provides health benefits to
FEHBP members in Allegheny, Annsu·ong, Beaver, Bedford, Blair, Butler , Crunbria, Cruneron,
Clru·ion, Cleru·field, Crawford, Elk, Erie, Fayette, Forest, Greene, Huntingdon, Indiana, Jefferson,
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Lawrence, McKean, Mercer, Potter, Somerset, Venango, Warren, Washington, and
Westmoreland counties. The last audit of the Plan conducted by our office was a full scope audit
of contract years 2007 through 2010. 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. Since the audit concluded that the Plan’s rating of the FEHBP
was in accordance with applicable laws, regulations, and OPM’s Rate Instructions to Community
Rated Carriers (rate instructions), a draft report was not issued.

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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
auditing standards. Those standards require that

Millions
we plan and perform the audit to obtain $80

sufficient, appropriate evidence to provide a $60
reasonable basis for our findings and conclusions $40
based on our audit objectives. We believe that $20
the evidence obtained provides a reasonable $0
basis for our findings and conclusions based on 2011
Revenue $78.7
our audit objectives.

This performance audit covered contract year
2011, during which the FEHBP paid approximately $78.7 million in premiums to the Plan, as
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 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:

• 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
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
3
that the available data was sufficient to achieve our audit objectives. Except as noted above, the
audit was conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

The audit fieldwork was conducted at the Plan’s office in Pittsburgh, Pennsylvania during March
2013. Additional audit work was completed at our office located 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. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and the rate instructions to determine the propriety of the FEHBP premiums and the
reasonableness and acceptability of the Plan’s rating system.

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

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III. RESULTS OF THE AUDIT
Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and the rate instructions for contract year 2011. Consequently, the audit did not
identify any questioned costs and no corrective action is necessary.

5
IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

, Auditor-in-Charge

., Chief

, Senior Team Leader