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 Humana Medical Plan, Inc. – South Florida Report No. 1C-EE-00-13-006 Date: July 10, 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 Humana Medical Plan, Inc. – South Florida Contract Number CS 2110 - Plan Code EE Louisville, Kentucky Report No. 1C-EE-00-13-006 Date: 7/10/13 Michael R. Esser Assistant Inspector General for Audits -- 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. EXECUTIVE SUMMARY Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Humana Medical Plan, Inc. – South Florida Contract Number CS 2110 - Plan Code EE Louisville, Kentucky Report No. 1C-EE-00-13-006 Date: 7/10/13 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Humana Medical Plan, Inc. - South Florida (Plan). The audit covered contract years 2010 through 2012, and was conducted at the Plan’s office in Louisville, Kentucky. This report questions $101,227 for inappropriate health benefit charges to the FEHBP in contract year 2010, including $6,270 for lost investment income through May 31, 2013. We found that the FEHBP rates were developed in accordance with applicable laws, regulations, and the Office of Personnel Management’s rules and regulations for contract years 2011 and 2012. For contract year 2010, we determined that the FEHBP’s rates were overstated by $94,957 due to defective pricing. More specifically, the Plan did not apply the correct SSSG discount to the FEHBP rates. Consistent with the FEHBP regulations and contract, the FEHBP is due $6,270 for lost investment income, calculated through May 31, 2013, on the defective pricing finding. In addition, the contracting officer should recover lost investment income on amounts due for the period beginning June 1, 2013, until all defective pricing amounts have been returned to the FEHBP. i 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 1. Defective Pricing ........................................................................................................ 5 2. Lost Investment Income ............................................................................................. 6 IV. MAJOR CONTRIBUTORS TO THIS REPORT............................................................ 7 Exhibit A (Summary of Questioned Costs) Exhibit B (Defective Pricing Questioned Costs) Exhibit C (Lost Investment Income) Appendix (Humana Medical Plan, Inc.-South Florida’s June 17, 2013, response to the draft report) I. INTRODUCTION AND BACKGROUND Introduction We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Humana Medical Plan, Inc. – South Florida (Plan). The audit covered contract years 2010 through 2012, and was conducted at the Plan’s office in Louisville, Kentucky. The audit was conducted pursuant to the provisions of Contract CS 2110; 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 March 31 rate, which is defined as the best rate offered to either of the two groups closest 7,000 in size to the FEHBP. In contracting with 6,000 community-rated carriers, OPM relies on carrier compliance with appropriate laws 5,000 and regulations and, consequently, does 4,000 not negotiate base rates. OPM negotiations 3,000 relate primarily to the level of coverage 2,000 and other unique features of the FEHBP. 1,000 The chart to the right shows the number of 0 FEHBP contracts and members reported by 2010 2011 2012 Contracts 2,873 2,633 2,448 the Plan as of March 31 for each contract Members 6,795 6,441 5,992 year audited. 1 The Plan has participated in the FEHBP since 1989 and provides health benefits to FEHBP members in the South Florida area. The last audit of the Plan conducted by our office was in 2009, and covered contract years 2006 through 2009. The prior audit identified a procedural issue with the Plan claims data submission. During our prior review of the Plan’s claims data submissions for 2007 through 2009, we noted several claims that were inappropriately unbundled. The noted exceptions were addressed; however, there were no monies due the FEHBP. All issues related to that audit were resolved. The preliminary results of this audit were discussed with Plan officials at an exit conference and in subsequent correspondence. A draft report was also provided to the Plan for review and comment. The Plan’s comments were considered in preparation of this report and included, as appropriate, in 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 $35 auditing standards. Those standards require that $30 Millions $25 we plan and perform the audit to obtain $20 sufficient, appropriate evidence to provide a $15 reasonable basis for our findings and conclusions $10 based on our audit objectives. We believe that $5 the evidence obtained provides a reasonable $0 2010 2011 2012 basis for our findings and conclusions based on Revenue $29.3 $32.3 $28.3 our audit objectives. This performance audit covered contract years 2010 through 2012. For these years, the FEHBP paid approximately $89.9 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 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 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 3 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 Louisville, Kentucky, during October 2012. Additional audit work was completed at our office located in Washington, D.C. 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 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 policies and procedures, interviewed appropriate Plan officials, and performed other auditing procedures necessary to meet our audit objectives. 4 III. AUDIT FINDINGS AND RECOM~IENDTIONS Premium Rate Reyiew 1. Defectin Pricing $94.957 TIle Certificate of Acc urate Pricin g the Plan signed for contract year 20 10 wa s defective. In acco rdance with fede ral regulations, the FEHBP is therefore due a rate reducti on for this year. Applica tion of the defective pricin g rem edy shows that the FEHBP is entitled to a premium adjustme nt totaling $94,957 (see Exhibit A). We found that the FEHBP rates were deve loped in acco rdance with applicable laws, regulation s, and OPM 's rule s and regu lations in contract years 20 11 and 20 12. Carriers proposing rates to a PM are required to submit a Certificate of Acc urate Pricin g certifyi ng that the prop osed subscription ra tes, subject to adjustments recognized by OPM, are market price rates. OPM regul ations refer to a market price rate in conjunction with the ra tes offered to an SSSG. SSSGs are the Plan' s two employer groups closest in size to the FEHBP. If it is found that the FEHBP was charged higher than the market pri ce rate (i.e., the best rate offered to an SSSG) , a condition of de fective pri cing exists, re quiring a downward adj ustment of the FEHBP premiums to the equi valent m arket price rate. TIle Plan selected the as SSSGs for contract year 20 10. We agree with these selections. Om analysis of the rates charge d to the SSSGs sho ws that I! received a . p e rcent discount and the percent discount . The Plan originally applied a percent discount to the FEHBP in the reconciliation. However, the FEHBP is entitled to a discount equi valent to the largest di sCOllllt~o an SSSG. We recalcul ated the FEHBP rates using the " p ercent discount given to _ A comparison of our audi ted rates to the Plan ' s reconc~ate s shows that the FEHBP wa s overcharged $94,957 in contract year 20 10 (see Exhibit B). Plan 's Comments (s.ee Appendix) TIle Plan had no issues or concerns with this fmding. Recommendation 1 We recommend that the contract ing officer re quire the Plan to returu $94,957 to the FEHBP for defective pri cing in contract year 20 10 (see Exhibit B). 5 2. Lost Investment Income $6,270 In accordance with the FEHBP regulations and the contract between OPM and the Plan, the FEHBP is entitled to recover lost investment income on the defective pricing finding in contract year 2010. We determined that the FEHBP is due $6,270 for lost investment income, calculated through May 31, 2013 (see Exhibit C). In addition, the FEHBP is entitled to lost investment income for the period beginning June 1, 2013, until all defective pricing finding amounts have been returned to the FEHBP. FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP contract was increased because the carrier furnished cost or pricing data that was not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge caused by the defective data. In addition, when the rates are reduced due to defective pricing, the regulation states that the government is entitled to a refund and simple interest on the amount of the overcharge from the date the overcharge was paid to the carrier until the overcharge is liquidated. Our calculation of lost investment income is based on the United States Department of the Treasury's semiannual cost of capital rates. Plan’s Comments (see Appendix) The Plan had no issues or concerns with this finding. Recommendation 2 We recommend that the contracting officer require the Plan to return $6,270 to the FEHBP for lost investment income, calculated through May 31, 2013. We also recommend that the contracting officer recover lost investment income on amounts due for the period beginning June 1, 2013, until all defective pricing finding amounts have been returned to the FEHBP. 6 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group Auditor-in-Charge , Auditor ., Chief , Senior Team Leader 7 Exhibit A Humana Medical Plan, Inc. - South Florida Summary of Questioned Costs Defective Pricing Questioned Costs Contract Year 2010 $94,957 Total Defective Pricing Questioned Costs $94,957 Lost Investment Income $6,270 Total Questioned Costs $101,227 Exhibit B Humana Medical Plan, Inc. - South Florida Defective Pricing Questioned Costs 2010 Self Family High Option FEHBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Bi-weekly Overcharge To Annualize Overcharge: March 31, 2010 Enrollment x 26 Pay Periods 26 26 Subtotal $88,609 Standard Option FEHBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Bi-weekly Overcharge To Annualize Overcharge: March 31, 2010 Enrollment x 26 Pay Periods 26 26 Subtotal $6,348 Total Defective Pricing Questioned Costs $94,957 Exhibit C Humana Medical Plan, Inc. - South Florida Lost Investment Income Year 2010 2011 2012 31-May-2013 Total Audit Findings: 1. Defective Pricing $94,957 $0 $0 $0 $94,957 Totals (per year): $94,957 $0 $0 $0 $94,957 Cumulative Totals: $94,957 $94,957 $94,957 $94,957 Avg. Interest Rate (per year): 3.1875% 2.5625% 1.8750% 1.3750% Interest on Prior Years Findings: $0 $2,433 $1,780 $544 $4,757 Current Years Interest: $1,513 $0 $0 $0 $1,513 Total Cumulative Interest Calculated Through May 31, 2013: $1,513 $2,433 $1,780 $544 $6,270 _L...- APPENDIX _ From: Se n t : Mond ay, Jun e 17, 2013 12:49 PM To: Subj ect : RE: Humana Revision to Aud it ors w orkp aper C 4 15 - lC-EE -OO -13-006 - 4 -25-2013 • • •11apologize for my lack of respo nse, ple ase pro ceed w it h the Final Aud it Repo rt using t he 6,40% SSSG d iscount and Hu mana w ill con cur w ith t his find ing . -From : sen.'i1 : T~ue:;da TO:_1i!I ~_~y, May 21. 2013 10:45 AM - - - --- Subject: RE: Bumara Revision to Auditors w orkpeper C 4 15 - l C-EE-OO' 13-00G - 4-25-2013 Importance: High -The s p re a d~ o u provided needed t o be uQdated. The average members for t he have been_ but t he sp reads heet sho wec" should be t h e ~ vs. • This changed t he discou nt from ~ t o • should . Therefore, it %, wh ich is ap proximat ely S_ difference. Ple ase give me a call discuss. Than ks Fro m: 1 Sent: Frida y, May 17, 2013 4:16 pr-1 To: Subject: Humana Revision to Audito rs Workpaper C 4 15 · lC-EE-OO- 13-006 - 4-25-2013 Use t h is if you want. - T he inform ation transmitted is intended only for th e person or entity to which it is addressed and may conta in CO NFIDE NTIAL material. If you receive this material/information in error, please contact the sender and delete or destroy the material/information. No virus fo und in this message. Checked by A va - www.avg.com Version: 20 13.0.3336 / Virus Database: 3 162/6332 - Release Date: 05/ 17/ 13 The informati on transmitted is intended only for the person o r entity 10 which it is ad dres sed and may conta in CONFIDENTIAL materia l. 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Audit of the Federal Employees Health Benefits Program Operations at Humana Medical Plan, Inc. - South Florida
Published by the Office of Personnel Management, Office of Inspector General on 2013-07-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)