oversight

Audit of the Federal Employees Health Benefits Program Operations of PacifiCare of Colorado

Published by the Office of Personnel Management, Office of Inspector General on 2009-11-12.

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

                                                    u.s. OFFICE OF PERSONNEL MANAGEMENT
                                                               OFFICE OF THETNSPECTOR GENERAL
                                                                               OFFICE OF AUDITS




Final Alldlt Report
.Subject:

          .
                         .
                             .   .              .         .     .
                                                                .
                                                                                    .    .




   . . ,Al1(litoftbe Federal Employees lIealth Benefits
        ··.Progranl·.· Oper~tiollS·· of··'J? acitiCare.·of 'Colorado'


                                         Report No. 1 C'-D6~OO~09'-005


                                         Date:       November. 12; ·2009




                                                        -- CAUTION -­
This audit report has been distiibutedtoFederal offidalswho are responsibie for the administration of tlle.audited program. This
audit report may c~ntainproprietlliry data. which is protected by Federal law (18U.S.C. i90~)_ Therefore, while Ihis audit report i$
available under the Freedom of Information Act and made available .10 the public on ihe OIG webpage, caution needs to be exercised
before releasing the report to Ihe general public as il may contain proprietary i'nCormalion that was redacted from the publici)'
distributed copy.'                                                    ' . ,                                     .
                          UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                              Washington, DC 20415 



   Office of the
Inspector General




                                       EXECUTIVE SUMMARY 





                               Federal Employees Health Benefits Program 

                            Community-Rated Health Ma'intenance Organization 

                                         PacifiCare of Colorado 

                                 Contract Number 1761 - Plan Code D6 

                                          Cypress, California 




                    Report No. lC-D6-00-09-00S                   Dak:November 12, 2009


        The Office of the Inspector General perfonned an audit of the Federal Employees Health Benefits
        Program (FEHBP) operations at PacifiCare of Colorado (Plan). The audit covered contract years
        2005 through 2008 and was conducted at the Plan's office in Cypress, California. We found that
        the FEHBP rates were developed in accordance with the Office of Personnel Management's rules
        and regulations in the years audited. This report details a procedural finding related to a non~
        covered eye exercise benefit which was incorrectly paid by the Plan.




        www.opm.gov                                                                         www.usajobs.gov
                               UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                                Washington, DC 20415 



  Office of the
Inspector General




                                                AUDIT REPORT



                                      Federal Employees Health Benefits Program 

                                   Community-Rated Health Maintenance Organization 

                                                PacifiCare of Colorado 

                                        Contract Number 1761 - Plan Code D6 

                                                 Cypress, California 




                         Report No. lC-D6-00-09-005                      Dak: November 12, 2009




                                                                          Michael R. Esser
                                                                          Assistant Inspector General
                                                                            for Audits



        ----------------.--   ---------------------------------­
        www.opm.gov                                                                            www.usaJobs.gov
                                                          CONTENTS 



                                                                                                                                  Page

     EXECUTIVE SUMMARy............................................................................................... i 


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


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


III. 	 AUDIT FINDINGS AND RECOMMENDATION ........................................................ 5 


     Premium Rate Review ...................................................................................................... 5 


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


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


IV. 	 MAJOR CONTRlBUTORS TO THIS REPORT ........................................................... 6 


     Appendix (PacifiCare of Colorado's October 2,2009, response to the draft report) 

                     I. INTRODUCTION AND BACKGROUND 


Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at PacifiCare of Colorado (Plan). The audit covered contract years 2005 through 2008 and was
conducted at the Plan's office in Cypress, California. The audit was conducted pursuant to the
provisions of Contract CS 1761; 5 U .S.C. Chapter 89; and 5 Code of Federal Regulations (CFR)
Chapter I, 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
Center for Retirement and Insurance Services. The provisions of the Federal Employees Health
Benefits Act are implemented by OPM through regulations codified in Chapter I, 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 earners 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 camers are federally qualified). In addition,
participation in the FEHBP subjects the
carriers to the Federal Employees Health                   FEHBP Contracts/Members
Benefits Act and implementing regulations                          March 31

promulgated by OPM.

The FEHBP should pay a market price rate,
which is defined as the best rate offered to
either of the two groups closest in size to the
FEHBP. In contracting with community­
rated carriers, OPM relies on carrier
compliance with appropriate laws and
regulations and, consequently, does not
negotiate base rates. OPM negotiations relate
primarily to the level of coverage and other
unique features of the FEHBP.

The chart to the right shows the number ofFEHBP contracts and members reported by the Plan
as of March 3 I for each contract year audited.

                                                  1

The Plan has participated in the FEHBP since 1978 and provides health benefits to FEHBP
members throughout the Metropolitan Denver, Boulder, and Colorado Springs areas. The last
full-scope audit covered contract years 2000, 200),2003 and 2004. AU questioned costs
associated with that audit have been resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through subsequent correspondence. A draft report was also provided to the Plan for review and
comment. The Plan's comments were considered in the preparation ofthis final 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.


                                                                     FEHBP Premiums Paid to Plan

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 believe 

that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit 

objectives. 


This performance audit covered contract years 2005 

through 2008. For these years, the FEHBP paid 

approximately $359.8 million in premiums to the Plan. 

The premiums paid for each contract year audited are shown on the chart to the right. 


DIG 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 SSSGs); and

       • 	 the loadings to the FEHBP rates were reasonable and equitable.

In conducting the audit, we relied to varying degrees on computer-generated bil1ing, emoUment,
and claims data provided by the Plan. We did nol 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 Cypress, California, during January
2009. Additional audit work was completed at our office 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
biI1ings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and OPM's Rate Instructions to Community-Rated Carriers to determine the
propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan's rating
system.

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




                                                 4

                III. AUDIT FINDINGS AND RECOMMENDATION 


Premium Rate Review

Our audit showed that the Plan's rating of the FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions to carriers for contract years 2005 through 2008.
Consequently, the audit did not identify any questioned costs and no corrective action is
necessary.

Claims Review

Per FEHBP Program Carrier Letters 2006-14 and 2007-09, the Office of Personnel Management
requires all carriers to keep on file all data necessary to justify its Adjusted Community Rating
(ACR) rate and save back-up copies of their claims databases for audit purposes. We reviewed
FEHBP claims data for contract years 2007 and 2008. We ran queries on the claims data that
relate to hospital, physician, out-of-area, prescription drugs and injectible drugs, large claims,
coordination of benefits, bundling of claims, and non-covered benefits according to the FEHBP
benefit brochures. We found that in 2008, the Plan paid for non-covered benefits.

1. Payment for Non-Covered Services

  Our review of the 2008 FEHBP claims data shows that the Plan paid for claims that related to
  eye exercises, which is a non-covered benefit according to the FEHBP benefit brochure. We
  queried claims data during the experience period of April 1, 2006 through March 31, 2007 and
  found that there were eight instances of the Plan inappropriately paying for this benefit. The
  total paid amount was $1,000. We notified the Plan of our results and requested an
  explanation for payment of these claims. The Plan agreed that the eye exercise claims were
  paid erroneously. The Plan also noted that their claims system was set up incorrectly. The
  Plan asserts that the system was corrected on June 9, 2009 and assures that any claims ofthis
  category will not be covered going forward. Due to this benefit being of rare usage, the Plan
  could not provide any eye exercise claims that have been submitted and rejected or any other
  documentation to show the system has been corrected. We agree with the Plan that these
  claims were paid incorrectly. Additionally, the amount in question does not have a significant
  impact on the premium rates for 2008.

   Plan~s   Comments (See Appendix)

   The Plan agrees with our finding.

  Recommendation 1

  We recommend that the contracting officer require the Plan to monitor its claims system and
  track eye exercises to ensure that these claims are being reviewed and rejected as a n011­
  covered benefit.


                                                 5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                   Audi tor-In-Charge

                      Auditor


                   Chief

                   Senior Team Leader




                                        6

                                                                                                         Appendix



I~LB&l~
                                                                                     300 South Grand Avenue. Su~le 2600
                                                                                                . Los Angeles, CA 900-(1
                                                                                               Telephone: 213-485·1500
                                                                                                      Fax:   213A3~'200
                                                                                                      www.IO,:xBlorrJcom
                                                        20UQ0C1-5
Locke Lord Bisse11 & Liddell.,,,
Attorneys & Counseiors




October 2, 2009


                 rV-Irl:rlllP.rl Audits Group

Office of the Inspector General
U.S. Office of Personnel Management
1900 E. Street, NW, Room 6400
Washington, DC 20415-1100

RE: 	    Comments to the Draft Audit Report on PacifiCare of Colorado, Plan Code 06, Report No.1 C­
         06-00-09-005

Dear_

        We represent PacifiCare of Colorado, a UnitedHealthcare Company ("UnitedHealthcare") in
connection with the above referenced matter. UnitedHealthcare Company is responding to this audit
on behalf of PacifiCare of Colorado ("PacifiC are," "PacifiCare of Colorado," or "the Plan.")

        On August 24, 2009, the United States Office of Personnel Management, Office of the
Inspector General ("OPM/OIG") submitted to the Plan a "Draft Report" (1C-D6-00-09-005) ("Draft
Report"), detailing the results of its audit of the Federal Employee Health Benefits Program ("r ':hE'P':
operations of PacifiCare of Colorado for Contract Years 2005 through 2008. Upon submission.
OPM/OIG requested that the Plan provide comments to the Draft Report. The Plan apprec.i,·,\W, :"
opportunity to respond to this Draft Report.

        At the time of the audit, the Plan discussed with the OIG auditors the erroneous payment of
claims for non-covered eye exercises. The Plan also informed OIG that the Plan had subsequently
made corrections to its claims system that would prevent such erroneous payments in the future. The
Plan agrees to monitor its claims system that tracks eye exercises to ensure that these claims are
being reviewed and rejected as a non-covered benefit.

       The total amount erroneously paid was $1,000.00. It is the Pian's understanding that this
amount had no significant impact on the 2008 rates and no amounts are due OPM on this issue.

        Please contact me at the address, phone number or e-mail on this letterhead if you have any
questions or require additional information. We appreciate your ongoing cooperation.

                                                            Very truly yours,

                                                            LOCKE, LORD, BISSELL & LIDDELL LLP




cc:
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