oversight

Audit of the Federal Employees Health Benefits Program Operations at United Healthcare Benefits of Texas, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2015-11-18.

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
               UNITED HEALTHCARE BENEFITS OF TEXAS, INC.

                                           Report Number 1C-GF-00-15-002
                                                 November 18, 2015


                                                             -- 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 (http://www.opm.gov/our-inspector-general), 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 

               Audit of the Federal Employees Health Benefits Program Operations at                            

                              United Healthcare Benefits of Texas, Inc. 

Report No. 1C-GF-00-15-002                                                                       November 18, 2015

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

The objectives of the audit were to        In contract year 2012, we found that the Plan charged the FEHBP
determine if United Healthcare             for internal prosthetics related to penile implants. The Plan
Benefits of Texas, Inc. (Plan) offered     indicated that no other group is charged for this coverage. Neither
the Federal Employees Health               the Plan nor the Office of Personnel Management’s (OPM)
Benefits Program (FEHBP) premium           contracting office were able to provide documentation that
rates using complete, accurate and         requested coverage of this specific benefit. Since penile prosthesis
current pricing data, and that the rates   is considered an internal prosthetic and is included under the
were equivalent to the Plan’s              internal prosthetic coverage for all other groups, we disallowed the
Similarly Sized Subscriber Groups, as      charge.
provided in Federal Health
Employees Acquisition Regulation           Additionally, we found that the Plan did not maintain original
1652.215-70(a). Additional tests           source documentation to support its benefit loadings of the FEHBP
were performed to determine whether        and Similarly Sized Subscriber Groups (SSSGs), as required by
the Plan was in compliance with the        Section 3.4 of its FEHBP contract. These loadings were removed
provisions of the laws and regulations     from the FEHBP rate calculation. Due to other adjustments to our
governing the FEHBP.                       audited rates, there was no material cost impact to the FEHBP rates
                                           in contract year 2012.
What Did We Audit?

Under contract CS 1937, the Office of
the Inspector General (OIG)
completed a performance audit of the
FEHBP’s rates offered for contract
year 2012. Our audit was conducted
from January 12, 2015 through
January 23, 2015 at the Plan’s office
in Cypress, California.




 _______________________
 Michael R. Esser
 Assistant Inspector General
 for Audits
                                                        i
                ABBREVIATIONS

CFR      Code of Federal Regulations
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
PLAN     The United Healthcare Benefits of Texas, Inc.
SSSG     Similarly Sized Subscriber Group




                               ii
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.................................................5


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


        1. Inappropriate Benefit Loading.................................................................................5 


        2. Records Retention....................................................................................................6 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ....................................................8 


        Appendix (The Health Plan’s June 12, 2015 response to the draft report) 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT
 IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                        TO THIS REPORT

This final report details the findings, conclusions, and recommendations resulting from our audit
of the Federal Employees Health Benefits Program (FEHBP) operations at United Healthcare
Benefits of Texas, Inc. (Plan). The audit covered contract year 2012 and was conducted at the
Plan’s office in Cypress, California.

The audit was conducted pursuant to FEHBP contract CS 1937; 5 United States Code Chapter
89; and 5 Code of Federal Regulations Chapter 1, Part 890. The audit was performed by the U.S.
Office of Personnel Management’s (OPM) Office of the Inspector General (OIG), as established
by the Inspector General Act of 1978, as amended.

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 OPM’s
Healthcare and Insurance Office. Health insurance coverage is provided through contracts with
health insurance carriers that 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 premium rate that is                           FEHBP Contracts/Members
equivalent to the best rate given to either of the two                       March 31

groups closest in size to the FEHBP. In contracting
with community-rated carriers, OPM relies on carrier
                                                                 2,500
compliance with appropriate laws and regulations and,
                                                                 2,000
consequently, does not negotiate base rates. OPM
                                                                 1,500
negotiations relate primarily to the level of coverage
                                                                 1,000
and other unique features of the FEHBP.
                                                                   500

                                                                     0
The chart to the right shows the number of FEHBP                                 2012
                                                               Contracts         1,242
contracts and members reported by the Plan as of
                                                               Members           2,374
March 31, 2012.

The Plan has participated in the FEHBP since 1983 and


                                                1                           Report No. 1C-GF-00-15-002
provides health benefits to FEHBP members in the San Antonio area of Texas. The last audit
conducted by our office was a full scope audit and covered contract years 2009 through 2011.
All issues identified during that audit have been resolved.

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




                                                 2                          Report No. 1C-GF-00-15-002
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objectives
The primary objectives of the audit were to determine if the FEHBP premium rates were
developed using complete, accurate and current data, and were equivalent to the Plan’s Similarly
Sized Subscriber Groups (SSSG), as provided in Federal Employees Health Benefits Acquisition
Regulation (FEHBAR) 1652.215-70(a). Additional tests were performed to determine whether
the Plan was in compliance with the provisions of the laws and regulations governing the
FEHBP.

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 believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

This performance audit covered contract year 2012. For this year, the FEHBP paid
approximately $15.6 million in premiums to the Plan.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and the rate instructions. These audits are also
designed to provide reasonable assurance of detecting errors, irregularities, and illegal acts.

We obtained an understanding of the Plan’s internal control structure, but we did not use this
information to determine the nature, timing, and extent of our audit procedures. However, the
audit included such tests of the Plan’s rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

        The appropriate SSSGs were selected;

        the rates charged to the FEHBP were developed using complete, accurate and current
         data, and were equivalent to the best rate given 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


                                               3                          Report No. 1C-GF-00-15-002
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 at the Plan’s office in Cypress, California in January 2015.
Additional audit work was completed at our office in Jacksonville, Florida.

Methodology
We examined the Plan’s Federal rate submission and related documents as a basis for validating
the Certificate of Accurate Pricing. In addition, we examined the rate development
documentation and billings to other groups, such as the SSSGs, to determine if the FEHBP rates
were reasonable and equitable. Finally, we 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.

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                   Report No. 1C-GF-00-15-002
  III. AUDIT FINDINGS AND RECOMMENDATIONS

Premium Rate Review

1. Inappropriate Benefit Loading                                                        Procedural

  In contract year 2012, we found that the Plan charged the FEHBP for internal prosthetics related
  to penile implants. The Plan indicated that no other group is charged for this coverage. Neither
  the Plan nor the Office of Personnel Management’s (OPM) contracting office was able to
  provide documentation that requested coverage for this specific benefit. Since this implant is
  considered to be an internal prosthetic and is included under the internal prosthetic coverage for
  all other groups, we disallowed the benefit loading.

  Additionally, the Plan did not provide sufficient documentation to support its calculation of the
  FEHBP and SSSG medical and pharmacy benefit adjustment factors. Due to the lack of support,
  we could not verify that the loadings to the FEHBP’s rates were reasonable and equitable.

  We calculated our audited FEHBP rates by reducing the benefit adjustment factors to           and
  removing the internal prosthetic charges related to penile implants. Due to other adjustments to
  our audited rates however, there was no material cost impact in contract year 2012.
  Consequently, we are not questioning any dollars related to this finding in our final report.

  Plan’s Response:

  The Plan acknowledges that the FEHBP was inappropriately charged for internal prosthetics
  related to penile implants. This issue was first addressed during the audit of United Healthcare
  of California (report number 1C-CY-00-13-029). The Plan states, “the earliest opportunity… to
  remove the penile prosthesis benefit from [FEHBP] coverage… was the 2014 Rate
  Reconciliation which was filed…in April 2014.” Furthermore, “The Plan [has taken] appropriate
  steps to rectify the issue addressed by OPM relative to penile prosthesis benefit and no further
  action is required by the Plan.”

  The Plan disagrees with the insufficient documentation finding and states, “the Plan provided the
  calculation of all factors utilized in the rate development for contract year 2012.”

  OIG Comment:

  The OIG acknowledges that the Plan has taken corrective actions by removing the penile
  prosthetics charges starting with the 2014 reconciliations. The OIG will verify whether the
  loading continued to be excluded from future reconciliations when we perform future audits.




                                                  5                           Report No. 1C-GF-00-15-002
  However, the OIG maintains that the Plan did not provide documentation for all components of
  its medical and pharmacy benefit adjustment factors as requested by OIG auditors. Specifically,
  the auditors requested documentation to support standard or base per member per month
  (PMPM) costs as well as group specific benefit package PMPM costs. These figures are the
  starting point of the Plan’s benefit adjustment calculation and are critical in determining whether
  the loading to the FEHBP is equitable. After multiple requests, neither the standard/base PMPM
  nor group specific PMPM was provided.

  Recommendation 1

  We recommend that in the course of developing future year’s FEHBP benefit loadings, that the
  Plan implement internal controls to ensure the FEHBP is not charged for additional loadings that
  are already included as part of our package of benefits.

  Recommendation 2

  We recommend that the contracting officer require the Plan to provide sufficient documentation
  to support its calculation of the FEHBP and SSSG medical and pharmacy benefit adjustment
  factors.

2. Records Retention                                                                      Procedural

  The Plan did not comply with the records retention clause of its FEHBP contract. After several
  requests, the Plan did not provide original source documentation to support the benefit
  adjustments applied to the FEHBP and the SSSGs rates in contract year 2012. Although we
  ultimately developed audited rates, the FEHBP contract requires the Plan to retain and make
  available all records supporting its rate submissions for a period of six years after the end of the
  contract term to which records relate.

  Plan’s Response (see Appendix):

  The Plan disagrees that it did not comply with the records retention clause of its FEHBP contract
  and that they have maintained all related documentation. Furthermore, the Plan states, “[we]
  strongly disagree that any penalty is due OPM for lack of compliance with the records retention
  clause….”




                                                    6                   Report No. 1C-GF-00-15-002
OIG Comment:

The Plan was unable to provide any additional documentation or argument that would negate the
record retention procedural findings. The OIG cannot express an opinion on the validity of the
Plan’s benefit change factors applied to the FEHBP and SSSGs in contract year 2012 because
requested supporting documentation was not provided.

Recommendation 3

We recommend that the contracting officer assess the maximum penalty allowed in the contract
between OPM and the Plan for the Plan’s breech of the records retention clause.

Recommendation 4

We recommend that the contracting officer inform the Plan that it should fully comply with the
records retention provisions of the contract by maintaining all pertinent rating documents that the
Plan uses in developing actual rates for the FEHBP and the groups closest in size to the FEHBP
for each unaudited year covered under the clause.




                                                7                           Report No. 1C-GF-00-15-002
  IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

        , Auditor-in-Charge


           , Senior Team Leader

              , Group Chief




                                  8   Report No. 1C-GF-00-15-002
UnitedHealthcare                                                          5701 Katella Avenue
EMPLOYER & INDIVIDUAL                                                     Cypress CA, 90630




June 12, 2015



                      U.S.
Office of Personnel Management 800
Cranberry Woods Drive
Suite 270
Cranberry Township, Pennsylvania 16066

RE: Comments to the Draft Audit Report on UnitedHealthcare Benefits of Texas,
Inc., Plan Code GF, Report No. 1C-GF-00-15-002

Dear          :

On May 13, 2015, the United States Office of Personnel Management, Office of the
Inspector General ("OPM/OIG") submitted to the Plan a "Draft Report" (1C-GF-00-15-
002) ("Draft Report"), detailing the results of its audit of the Federal Employees Health
Benefits Program ("FEHBP") operations of UnitedHealthcare Benefits of Texas, Inc. (GF)
for contract year 2012. Upon submission, OPM/OIG requested that the Plan provide
comments to the Draft Report.

The Plan appreciates the opportunity to respond to this Draft Report and the willingness
of OPM to help resolve the outstanding issues in this audit, The Plan has used its best
efforts to obtain all relevant information to respond to the Draft Report's findings and
recommendations. This Response will address each issue presented in the Draft Report.

Premium Rates

1. Inappropriate Benefit Loading

Deleted by OIG
Not Relevant to the Audit Report

First, with respect to the Penile Prosthesis benefit the Plan acknowledges that this issue
was first addressed by the Office of Personnel Management with the Plan during the
audit of the PacifiCare of California/UHC of California (rate code CY) for plan years
2010-2012.

Deleted by OIG
Not Relevant to the Audit Report



                                                                           Report No. 1C-GF-0015-002
Due to the timing of the audit of the 2010 - 2012 CY Rate Code, the earliest opportunity the
Plan had to remove the penile prosthesis benefit from coverage (as well as remove the
associated pricing) was the 2014 Rate Reconciliation which was filed with OPM in April of
2014. At that time, the Plan indicated that based on the audit the Plan was changing the
benefit for both rate codes CY and GF due to the fact that these were the only two rate codes
that were impacted by this benefit. Please refer to Attachment I -Cover letter for 2014 Rate
Reconciliation.

Deleted by OIG
Not Relevant to the Audit Report

The Plan did take the appropriate steps to rectify the issue addressed by OPM relative
to the penile prosthesis benefit and no further action is required by the Plan.

Deleted by OIG
Not Relevant to the Audit Report

The Plan disagrees with the second statement by OPM of "....the Plan did not provide
sufficient documentation to support its calculation of the FEHBP and SSSG medical and
pharmacy benefit adjustment factors."

The Plan provided the calculation of all factors utilized in the rate development for the
contract year 2012 for UnitedHealthcare Benefits of Texas, Inc. (GF). First, at the time of the
FEHBP 2012 Rate Reconciliation submission which occurred in April of 2012, the Plan
furnished the calculation of the factors used in rate development for the FEHBP and the
SSSGs (Refer to the following attachments: Attachment II - FEHBP Factors, Attachment III
- SSSG #1 -                        Factors, and Attachment IV - SSSG #2 -
                      Factors), Second, the Plan furnished a copy of the entire 2012 FEHBP
Rate Reconciliation as part of the pre-audit materials provided prior to the onsite portion of
the audit (this included Attachments II - IV).

Deleted by OIG
Not Relevant to the Audit Report

The Plan strongly asserts that the methodology utilized for the FEHBP and SSSG rate
development is actuarially sound, consistent with the standard rating practice of the Plan and
is fully supported by documentation provided to OPM/OIG.

2. Record Retention

In the Draft Report, it states "The Plan did not comply with the records retention
clause of its FEHBP contract…”




                                                                Report No. 1C-GF-00-15-002
Deleted by OIG
Not Relevant to the Audit Report

The Plan disagrees with this statement. The Plan does maintain all records supporting the
rate development that is submitted to OPM. The issue in question relates to the actuarial
starting point from which all relativities were developed. The Plan explained on several
occasions that the starting point from which all plans' relative values are established is
developed by the Plan's actuarial staff. The same starting point is utilized to illustrate the
relative value of the plan of benefits offered to the FEHBP and the SSSGs. The Plan further
explained to the auditor that the method of relative values is a standard actuarial rating
method and that as long as all plans are compared to the same starting plan, the relative
values between the plans is a valid calculation method to determine how one plan relates to
another plan offering.

Deleted by OIG
Not Relevant to the Audit Report

In addition, the Plan finds that there is no material difference between the Plan's
methodology and the method employed by OPM/OIG to develop their version of the audited
rates, This would seem to indicate that the Plan's methodology is sound as the OPM/OIG
could not demonstrate that the Plan's method was inaccurate.

Deleted by OIG
Not Relevant to the Audit Report

The Plan strongly disagrees with the assertion that any penalty is due OPM for lack of
compliance with the records retention clause of the Plan's contract with OPM. The Plan has
maintained and provided documentation to support the rate development for the contract
year 2012 in the scope of the audit which is the subject of the Draft Report. Further, the Plan
maintains all documentation that supports the rating development for each of the contract
years as a participant under the FEHBP as required by legislation and contractual
provisions.

Deleted by OIG
Not Relevant to the Audit Report

CONCLUSION

In conclusion, the Plan has reviewed OPM/OIG's findings for contract year 2012, presented
in the Draft Report 1C-GF-00-15-002. Based on our review of the information, the Plan has
determined that there was not an overpayment by FEHBP and that no further action is
required by the Plan.




                                                                 Report No. 1C-GF-00-15-002
 Once you have had an opportunity to review our response, please contact me if you have any
 questions or require additional information. Thank you for your ongoing cooperation.

Respectfully,




Keith E. Nygard
Director
                  





                                                              Report No. 1C-GF-00-15-002
                                                                              



               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-GF-00-15-002