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 2017-05-03.

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
                   UPMC HEALTH PLAN

                                           Report Number 1C-8W-00-16-041
                                                    May 3, 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
                                             UPMC Health Plan
Report No. 1C-8W-00-16-041                                                                                                                              May 3, 2017


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

The primary objective of the audit                                 This report identifies an overstated OPM MLR credit of
was to determine if UPMC Health                                    $68,885 for contract year 2013.
Plan (Plan) was in compliance with
                                                                   Our review of the 2012 and 2013 MLR submissions showed
the provisions of its contract and the
                                                                   that the Plan erroneously excluded the High-Deductible Health
provisions of the laws and regulations
                                                                   Plan allocations for Rx rebates, health care receivables, quality
governing the Federal Employees
                                                                   health improvement expenses, and fraud reduction expenses.
Health Benefits Program (FEHBP).
                                                                   We also determined that portions of the MLR calculation were
                                                                   not prepared in accordance with the laws and regulations
What Did We Audit?
                                                                   governing the FEHBP and the requirements established by
                                                                   OPM. Specifically, our audit identified the following errors in
Under Contract CS 2856-A and
                                                                   the 2013 submission:
2856-B, the Office of the Inspector
General (OIG) performed an audit                                         	 The Plan included medical claims not allowed by the
of the FEHBP operations at the                                              FEHBP and included claims for ineligible dependents
Plan. We verified whether the Plan                                          in the incurred claims data used to calculate the 2013
met the Medical Loss Ratio (MLR)                                            MLR.
requirements established by the
U.S. Office of Personnel                                                 	 The Plan did not correctly coordinate the payment of a
Management (OPM) in contract                                                medical claim with the Centers for Medicare and
years 2012 and 2013. We also                                                Medicaid Services and included the inaccurately paid
verified whether the Plan developed                                         claim in the incurred claims data used to calculate the
the FEHBP premium rates using                                               2013 MLR.
complete, accurate, and current data
in contract years 2012 and 2013.                                         	 The documentation provided by the Plan did not
Our audit fieldwork was conducted                                           support the tax and fraud reduction expenses reported in
from June 6, 2016, through                                                  the 2013 MLR submission.
January 12, 2017, at the Plan’s
office in Pittsburgh, Pennsylvania                                 Although these findings also affected the 2012 MLR
and in our OIG offices.                                            calculation, the findings did not result in a penalty for this
                                                                   contract year. Additionally, the audit showed that the rating
                                                                   documentation provided was sufficient to support the 2012 and
                                                                   2013 FEHBP premium rates.
 _______________________
 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
            COB                            Coordination of Benefits
            FEHBAR                         Federal Employees Health Benefits Acquisition Regulations
            FEHBP                          Federal Employees Health Benefits Program
            HDHP                           High-Deductible Health Plan
            HHS                            U.S. Department of Health and Human Services
            MLR                            Medical Loss Ratio
            OIG                            Office of the Inspector General
            OPM                            U.S. Office of Personnel Management
            Plan                           UPMC Health Plan
            SSSG                           Similarly-Sized Subscriber Group




                                                                              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.................................................7


                         A. 2013 Overstated Medical Loss Ratio Credit............................................................7 


                         EXHIBIT A (Summary of Overstated Medical Loss Ratio Credit)


                         EXHIBIT B (2012 and 2013 Medical Loss Ratio)


                         APPENDIX (UPMC Health Plan’s March 6, 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 UPMC Health Plan (Plan). The audit was conducted pursuant to the
       provisions of Contract CS 2856-A and CS 2856-B; 5 United States Code 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 Pittsburgh, Pennsylvania.

       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, or claims, 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 quality health improvements 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
       carriers in 2013, OPM required the carriers to submit an FEHBP-specific MLR. This
                                                                                1                                  Report No. 1C-8W-00-16-041
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                                may be protected by the Trade Secrets Act, 18 U.S.C. § 1905, or the Privacy Act, 5 U.S.C. § 552a.
       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 and activities that improve health care quality. 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 are shown in the chart below.
                                                                                                   FEHBP Contracts/Members 

       In contracting with community-                                                                     March 31

       rated carriers, OPM relies on
       carrier compliance with
                                                                            14,000
       appropriate laws and regulations
       and, consequently, does not                                          12,000

       negotiate base rates. OPM                                            10,000
       negotiations relate primarily to
                                                                              8,000
       the level of coverage and other
       unique features of the FEHBP.                                          6,000

                                                                              4,000
       The Plan has participated in the
                                                    2,000
       FEHBP since 2000, and provides
       health benefits to FEHBP                         0
                                                                  2012                                                         2013
       members in a 28-County area in             Contracts       7,329                                                        6,778
       Western Pennsylvania. A prior              Members        13,885                                                        12,632

       audit of the Plan covered contract
       year 2011. There were no findings or questioned costs identified in that audit.

       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-8W-00-16-041
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
                                                          $90.0
       findings and conclusions based on our
                                                          $80.0
       audit objectives.                                  $70.0
                                                                          Millions




                                                                                      $60.0
                                                                                      $50.0
       This performance audit covered contract 
                                      $40.0
       years 2012 and 2013. For these years, 
                                        $30.0
       the FEHBP paid approximately $164.4 
                                          $20.0
                                                                                      $10.0
       million in premiums to the Plan.
                                               $0.0
                                                                                                      2012                       2013
                                                                                     Revenue          $84.7                      $79.7
       The Office of the Inspector General’s
       (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:
                                                         3                      Report No. 1C-8W-00-16-041
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                                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 calculation 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 6, 2016, through June 17, 2016, at the Plan’s
       office in Pittsburgh, Pennsylvania. Additional fieldwork was completed through January 12,
       2017, 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 below by Medical and Pharmacy
       claims:

                                                                                4                                    Report No. 1C-8W-00-16-041
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                                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
                                                                                                                                                       Projected
Medical Claims                     Universe              Universe               Universe           Sample Criteria                  Sample
                                                                                                                                                         to the
 Review Area                       Criteria             (Number)                (Dollars)             and Size                       Type
                                                                                                                                                       Universe
                                                                                                                                                            ?
                                                                                                 Selected all
                                                                                                 members in the
                                                                                                 universe with
                             All Medical                                                         claims greater
Coordination of              claims for                                                          than or equal to
Benefits with                members                                        $                    $20,000. A total                Judgmental                 No 
                                                           claims 
Medicare 2013                greater than or                                                     of 18 claims
                             equal to age 65.                                                    were selected
                                                                                                 with duplicate
                                                                                                 members
                                                                                                 removed. 
                                                                                                 Selected all
                                                                                                 members from
                                                                                                 the universe with
                                                                                                 claims paid after
Deceased                     All members
                                                                                                 the date of death.
Member 2013                  greater than or                                    $                                                Judgmental                 No
                                                         members                                 A total of 1
                             equal to age 90.
                                                                                                 member and 1
                                                                                                 claim totaling
                                                                                                 $1,177 was
                                                                                                 selected.

                                                                                                  Randomly
                                 Members
                                                                                                  selected 20
                                 greater than or
Dependent                                                                                         members from
                                 equal to age 26                                    N/A                                            Random                   No 
Eligibility 2013                                         members                                  the universe
                                 designated as
                                                                                                  utilizing SAS
                                 dependent. 
                                                                                                  EG software. 
                              




                                                                                    5                                  Report No. 1C-8W-00-16-041
  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 Claims                     Universe                                                       Sample Criteria                  Sample             Projected
                                                           Universe           Universe
  Review Area                       Criteria                                                          and Size                       Type                to the
                                                          (Number)            (Dollars)
                                                                                                                                                       Universe?
                                                                                                 Selected the
                                                                                                 highest paid claim
                                                                                                 for each of the
                                 All pharmacy
                                                                                                 members in the
                                 claims
High Dollar Scripts                                                                              universe. Total
                                 greater than                  claims         $                                                   Judgmental                N/A
2013                                                                                             sample included
                                 or equal to
                                                                                                 14 claims for 14
                                 $8,000.
                                                                                                 members with a
                                                                                                 total amount paid
                                                                                                 of $238,129.
                                                                                                 Selected all
                                                                                                 members in the
                                 Members
                                                                                                 universe that were
                                 greater than
                                                                                                 not included in the
Dependent                        or equal to
                                                                                  N/A            medical claims                   Judgmental                N/A 
Eligibility 2013                 age 26                    members
                                                                                                 sample. Total
                                 designated as
                                                                                                 pharmacy sample
                                 dependent.
                                                                                                 includes 25
                                                                                                 members.  

         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.

         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.




                                                                                  6                                    Report No. 1C-8W-00-16-041
  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. 2013 Overstated Medical Loss Ratio Credit                                                                                        $68,885

            The UPMC Health Plan (Plan) elected to participate in the 2012 Medical Loss Ratio (MLR) pilot
            program offered to certain Federal Employees Health Benefits Program (FEHBP) carriers. In
            order to assess the appropriateness of the Plan’s premium rates in 2012 and 2013, it was required
            to file an MLR ratio submission under OPM’s MLR program. The MLR program replaced the
            SSSG 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 2012, the MLR pilot program carriers must have met the OPM-established
            MLR threshold of 89 percent. Therefore, at least 89 cents of every health care premium dollar
            must have been spent on health care expenses. If the amount spent on health care expenses was
            less than 89 percent, a carrier owed a subsidization penalty equal to the difference between the
            threshold and the carrier’s actual MLR.

            For contract year 2013, OPM changed the MLR threshold to 85 percent and created an MLR
            corridor. If carriers met the MLR threshold, no penalty was due. If the MLR was 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 MLR of       percent for contract year 2012, and    percent for
            contract year 2013. However, during our review of the Plan’s MLR submissions, we found the
            following issues.

            1) 2012 and 2013 Allocation of Expenses

                 In contract years 2012 and 2013, the Plan offered FEHBP members three benefit options; a
                 High Option Plan, a Standard Option Plan and a High-Deductible Health Plan (HDHP).
                 Based on the Plan's legal entity structure, the high and standard option members are included
                 under the Plan’s Health Plan, Inc. legal entity. The HDHP members are included under the
                 Plan’s Health Network Inc. legal entity. Since many of the FEHB MLR components are
                 allocated from the U.S. Department of Health and Human Services (HHS) MLR submissions,
                 which are filed by legal entity, the Plan should include allocations from both the Health Plan,
                 Inc. and Health Network, Inc. legal entities to capture all FEHB benefit options in the FEHB
                 MLR calculation.
                                                                                7                                  Report No. 1C-8W-00-16-041
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.
                                              However, during our review of contract years 2012 and 2013, we
                     The Plan excluded        found that the Plan opted to exclude the HDHP allocations (under
                     HDHP allocations         Health Network Inc.) for Rx rebates, health care receivables, quality
                     from the 2012 and        health improvement expenses, and fraud reduction expenses due to
                     2013 MLR                 the low FEHBP membership in the HDHP option. Although we
                     calculations.            agree that the overall impact of excluding these MLR components is
                                              nominal, it is a best practice to include all MLR components related
                   to all benefit options, including the HDHP option, since the claims and premium used in
                   calculating the MLR include the HDHP option.

                   Consequently, our audited MLR calculations for contract years 2012 and 2013 included
                   allocations for the HDHP benefit option under the categories of Rx rebates, health care
                   receivables, quality health improvement expenses, and fraud reduction expenses as applicable.

                   Plan Response:

                   The Plan agrees with the HDHP allocation finding in 2012 and 2013 and agrees it is a best
                   practice to include all MLR components in future FEHB MLR submissions.

             2) 2013 MLR Claims Data

                   Our review of the Plan’s 2013 MLR submission disclosed that the incurred claims amount
                   included in the Plan’s 2013 MLR calculation was incorrect. Specifically, the Plan included
                   claims amounts not allowed by the FEHBP.

                   During our coordination of benefits (COB) review, we reviewed a sample of 18 claims for 18
                   members age 65 or over to determine whether the sampled claims were properly paid and
                   coordinated with Medicare. We identified one claim improperly paid for a member, totaling
                   $33,902, who had primary coverage under Medicare. Per the 2013 contract, section 2.13, “the
                   Carrier shall limit its payment to an amount that supplements the Benefits payable by
                   Medicare (regardless of whether or not Medicare Benefits are paid)”.

                   Furthermore, the FEHBP’s certificate of coverage states that dependent coverage ends once
                   dependents turn 26 years of age, unless they are incapable of self-support. To determine
                   whether the Plan had adequate controls in place to prevent payments to ineligible dependents,
                   we reviewed a sample of 45 members (20 members from the medical claims data and 25
                   members from the pharmacy claims data) age 26 and older that were designated as
                   dependents in the claims data submitted to OPM. Our review disclosed that the Plan did

                                                                             8                                            Report No. 1C-8W-00-16-041
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 Plan did not                   not have sufficient support for two overage members. The results of
                        have sufficient                  our query and review of claims that the Plan paid on behalf of the
                     controls in place to                ineligible dependents disclosed total improper payments of $       .
                    exclude unallowable
                       claims from the                   In conclusion, our review of the 2013 claims data disclosed total
                       FEHBP’s MLR                       improper payments of $         . Therefore, we removed $
                         calculation.                    from the 2013 MLR numerator in our audited calculation (See
                                                         Exhibit B).

                   Plan Response:

                   The Plan agrees with the claims findings for contract year 2013. Furthermore, the Plan
                   states, “To promote correct payment of claims…, internal controls and proper system edits
                   will be reviewed and modified as necessary by April 30, 2017.”

             3) 2013 Tax Expense

                   Pursuant to the provisions of HHS 45 CFR § 158, health plans are allowed to reduce the
                   premium used in the MLR calculation by taxes and regulatory fees paid, excluding Federal
                   income taxes paid on investment income and capital gains. The Plan reported a total tax
                   expense adjustment of $          in its 2013 MLR submission. However, the documentation
                   provided by the Plan did not support this tax expense total. As a result, utilizing the
                   documentation provided, we adjusted the tax expense amount to reflect a total of $      ,
                   and used this amount in our audited 2013 MLR calculation (Exhibit B).

                   Plan Response:

                   The Plan did not specifically mention the tax expense adjustment finding. However, in
                   response to our recommendation for this finding, the Plan agreed “to implement internal
                   controls to effectively reduce the risk of including incorrect and unsupported data in the
                   MLR calculation.”

             4) 2013 Fraud Reduction Expense

                   The Plan reported a fraud reduction expense of $     in their 2013 MLR calculation.
                   However, in responding to our requests for supporting documentation, the Plan identified that
                   this expense was incorrectly allocated from the Individual product line instead of the Large
                   Group product line, under which the FEHB is included. Consequently, we calculated the
                   fraud reduction expense based on the Large Group product line and determined the allocated


                                                                             9                                            Report No. 1C-8W-00-16-041
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 Plan utilized                   fraud reduction expense to be $         for contract year 2013. We
                        incorrect and                     adjusted for this change in the audited 2013 MLR calculation.
                    unsupported data in
                       the 2013 MLR                       Plan Response:
                     calculation for the
                       tax and fraud          The Plan did not specifically mention the fraud reduction expense
                    reduction expenses.       finding. However, in response to our recommendation for this
                                              finding, the Plan agreed “to implement internal controls to
                   effectively reduce the risk of including incorrect and unsupported data in the MLR
                   calculation.”

             Conclusion

             We recalculated the Plan’s 2012 and 2013 MLR submissions based upon the issues outlined
             above. Our audited 2013 MLR calculation resulted in an overstated MLR credit of $68,885. Our
             audited 2012 MLR calculation did not result in a penalty (See Exhibit B).

             Plan Response: 


             The Plan agrees that the 2013 MLR carryover credit should be reduced by $68,885. 


             Recommendation 1

             We recommend that the contracting officer require the Plan to allocate all MLR components for
             the offered FEHB benefit options in future FEHB MLR submissions.

             Recommendation 2

             We recommend that the contracting officer require the Plan to implement internal controls and
             proper system edits to promote the correct payment of claims coordinated with Medicare.

             Recommendation 3

             We recommend that the contracting officer require the Plan to implement internal controls and
             proper system edits to prevent the payment of claims for ineligible dependents.




                                                                             10                                           Report No. 1C-8W-00-16-041
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.
             Recommendation 4

             We recommend that the contracting officer require the Plan to institute internal controls to
             mitigate the use of incorrect and unsupported data in the MLR calculation prior to filing it with
             OPM.

             Recommendation 5

             We recommend that the contracting officer instruct OPM’s Office of the Actuary to reduce the
             Plan’s 2013 MLR carryover credit by $68,885.




                                                                             11                                           Report No. 1C-8W-00-16-041
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

                                                    UPMC Health Plan
                                       Summary of Overstated Medical Loss Ratio Credit


                   Contract Year 2013


                   UPMC’s Filed 2013 Credit                                                                                    $141,207
                   Less: Audited 2013 Credit                                                                                    $72,322


                   Total Overstated MLR Credit                                                                                  $68,885




                                                                                                                        Report No. 1C-8W-00-16-041
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


                                                               UPMC Health Plan
                                                             2012 Medical Loss Ratio


                                                                                                    Plan                           Audited
     2012 FEHBP MLR Threshold (a)                                                                   89%                             89%

     Claims Expense
     Incurred Claims (Medical and Pharmacy)
     Dental Claims
     Less: Prescription Drug Rebate
     Adjusted Incurred Claims

     Allowable Fraud Reduction Expenses
     Less: Healthcare Receivables
     Expenses to Improve Health Care Quality
     Total Adjusted Incurred Claims

     Premium Expense
     Premium Income                                                                           $83,843,079                      $83,843,079
     Less: Federal and State Taxes and Regulatory Fees
     Adjusted Premium

     Less: Defective Pricing Finding (Due OPM)
     Total Adjusted Premium (c)

     Total Adjusted Incurred Claims (MLR Numerator)
     Total Adjusted Premium less Defective Pricing (MLR
     Denominator)
     FEHBP MLR Calculation (d)                                                                             %                                %
     Penalty Calculation (If (d) is less than (a), ((a-d)*c)                                          $0                               $0
     Total Penalty Due OPM                                                                                                             $0




                                                                                                                        Report No. 1C-8W-00-16-041
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

                                                               UPMC Health Plan
                                                             2013 Medical Loss Ratio

                                                                                                                 Plan                              Audited
 2013 FEHBP MLR Lower Corridor (a)                                                                               85%                                85%
 2013 FEHBP MLR Upper Corridor (b)                                                                               89%                                89%

 Claims Expense
 Incurred Claims (Medical and Pharmacy)                                                                                                                              

 Less: Incorrectly Paid COB Claims Finding                                                                                                                       

 Less: Incorrectly Paid Dependent Eligibility Claims Finding                                                                                                     

 Less: Prescription Drug Rebate                                                                                                                                      

 Dental Claims                                                                                                                                                   

 Adjusted Incurred Claims                                                                                                                                            


 Allowable Fraud Reduction Expenses
 Less: Healthcare Receivables
 Expenses to Improve Health Care Quality
 Total Adjusted Incurred Claims

 Premium Expense
 Premium Income                                                                                            $79,699,538                          $79,699,539
 Less: Federal and State Taxes and Regulatory Fees
 Adjusted Premium

 Less: Defective Pricing Finding (Due OPM)
 Total Adjusted Premium (c)

 Total Adjusted Incurred Claims (MLR Numerator)
 Total Adjusted Premium less Defective Pricing (MLR
 Denominator)
 FEHBP MLR Calculation (d)                                                                                             %                                    %
 Penalty Calculation (If (d) is less than (a), ((a-d)*c)                                                         $0                                  $0
 Credit Calculation (If (d) is greater than (b), ((d-b)*c)                                                    $141,207                             $72,322
 Overstated Credit Amount                                                                                                                         ($68,885)



                                                                                                                        Report No. 1C-8W-00-16-041
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


UPMC Health Plan
                                                                                                                                  March 6, 2017
Gordon Gebbens             Chief, Community-
Senior Vice President
Finance - Insurance        Rated Audits Group
Services and CFO
UPMC Insurance
                           U.S. Office of Personnel Management
Services Operating         Office of the Inspector General
Companies


600 Grant Street           Report Number 1C-8W-00-16-041
551 h Floor
Pittsburgh, PA 15219
T 412-454-5675


        @upmc.edu          Enclosed are the management responses for the audit report which detailed the results of the
                           Federal Employees Health Benefits Program (FEHBP) operations at UPMC Health Plan.
                           The audit covered contract years 2012 and 2013.

                           Recommendation 1
                           We recommend that the contracting officer instruct OPM's Office of the Actuary to reduce
                           the Plan's 2013 MLR carryover credit by $68,885.

                           Management Response:
                           UPMC Health Plan agrees that the 2013 OPM MLR credit was overstated by $68,885 and
                           will instruct the OPM's Office of the Actuary to reduce the 2013 MLR carryover credit by
                           this amount.

                           Recommendation 2
                           We recommend that the contracting officer require the Plan to allocate all MLR components
                           for the offered FEHB benefit options in future FEHB MLR submissions.

                           Management Response:
                           UPMC Health Plan did exclude the High-Deductible Health Plan allocations (under Health
                           Network, Inc.) for Rx rebates, health care receivables, quality health improvement, and fraud
                           reduction expenses. Even though these amounts are nominal, we agree that it is a best practice
                           to include all MLR components and will allocate all MLR components in future FEHB MLR
                           submissions.


                                                                                                                            Report No. 1C-8W-00-16-041
   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.
                          Recommendation 3

                           We recommend that the contracting officer require the Plan to implement internal 

                           controls and proper system edits to promote the correct payment of claims coordinated 

                           with Medicare.


                           Management Response:

                           UPMC Health Plan agrees with findings that a claim in the amount of $33,902 was 

                           paid for a member that had primary coverage under Medicare. To promote correct 

                           payment of claims coordinated with Medicare, internal controls and proper system

                           edits will be reviewed and modified as necessary by April 30, 2017


                           Recommendation 4 

                           We recommend that the contracting officer require the Plan to implement internal 

                           controls and proper system edits to prevent the payment of claims for ineligible 

                           dependents.

         
                           Management Response:

                           UPMC Health Plan agrees with findings that 2 of the 50 members (4%) tested that 

                           were age 26 and older did not have sufficient support to validate that they were 

                           eligible. To prevent the payment of claims for ineligible dependents, internal controls 

                           and proper system edits will be reviewed and modified as necessary by April 30, 

                           2017.

         
                           Recommendation 5

                           We recommend that the contracting officer require the Plan to institute internal controls 

                           to mitigate the use of incorrect and unsupported data in the MLR calculation prior to

                           filing it with OPM.

                            
                           Management Response:

                           UPMC Health Plan agrees to implement internal controls to effectively reduce the 

                           risk of including incorrect and unsupported data in the MLR calculation. As it relates 

                           to medical expenses included in the MLR, the internal controls identified in the 

                           management response to Recommendation 3 and Recommendation 4 will mitigate the 

                           risk of having incorrect claims paid, which would impact reporting incorrect medical 

                           expenses. Regarding administrative expenses that are included in the MLR 

                           calculation, expenses that are coded to this line of business will be routed to a 

                           reviewer from the accounting team. Before these expenses are posted to the 



                                                                                                                        Report No. 1C-8W-00-16-041
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.
                           accounting system, they will be reviewed for accuracy and appropriate support as it
                           relates to being a valid FEHBP expense.

        Please contact me with questions or if you require additional information.

        Thank you.




        Gordon Gebbens
        Senior Vice President Finance - Insurance Services and CFO
        UPMC Insurance Services Operating Companies
        UPMC Health Plan




                                                                                                                        Report No. 1C-8W-00-16-041
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-8W-00-16-041
                                                                -- 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.