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U.S. OFFICE OF PERSONNEL MANAGEMENT
OFFICE OF THE INSPECTOR GENERAL
OFFICE OF AlIDITS
Final Audit Report
Subject:
Audit of the Federal Employees Health Benefits.
Program Operations of Coventry Health Care of
Kansas, Inc.
Plan Code HA
. .
Report No. lC-HA-OO-09-035'
Date: December 14,2009
-- CAUTION -.
This~allditreport h.3S been distribtlled to Federal offidals who are responsible for ~he administration of the audiled program. This
a"difreport mayeontain proprietary data whieh is proteeled by Federal Jaw (18 U.S.c. 1905). Therefore, while this audit report is
available under the Freedom of Information Ad and made available 10 the public on the OIG webpage, caulion needs to be exercised
.before releasing the report to the general public liS it may con lain proprietary information thaI was redacted from the publicly
distrib.lJled copy•.' . .'. .
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
Coventry Health Care of Kansas, Inc.
Contract Number 1948-A - Plan Code HA
Kansas City, Missouri
Report No. lC-HA-OO-09-035 Date: pecember 1 4 t...-.f..9.Q9
Michael R. Esser
Assistant Inspector General
for Audits
www.opm.gov www.usaJobs.goY
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT
Washington, DC 20415
Office of the
Inspector General
EXECUTIVE SUMMARY
Federal Employees Health Benefits Program
Community-Rated Health Maintenance Organization
Coventry Health Care of Kansas, Inc.
Contract Number 1948-A - Plan Code HA
Kansas City, Missouri
Report No. lC-HA-OO-09-035 Dak:December 14, 2009
The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
Program (FEHBP) operations at Coventry Health Care of Kansas, Inc. (Plan). The audit covered
contract years 2006 through 2008 and was conducted at the Plan's office in Kansas City,
Missouri. This report details a procedural finding related to a non-covered elective abortion
benefit which was incorrectly paid by the Plan. We found that the Plan's ratings of the FEHBP
were developed in accordance with applicable laws, regulations, and the Office of Personnel
Management's rating instructions for the years audited.
www.opm.goY www.usajobs.goY
CONTENTS
EXECUTIVE SUMMARy i
. 1. INTRODUCTION AND BACKGROUND 1
II. OBJECTIVES, SCOPE, AND METHODOLOGy 3
III. AUDIT FINDINGS AND RECOMMENDATION 5
I. Premium Rate Review 5
2. Procedural Deficiency 5
Claims Review - Payment for Non-Covered Services 5
IV. MAJOR CONTRIBUTORS TO THIS REPORT 6
Appendix (Coventry Health Care of Kansas, Inc.'s October 19,2009, response to
the draft report)
I. INTRODUCTION AND BACKGROUND
Introduction
We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Coventry Health Care of Kansas, Inc. - Plan Code HA (Plan) in Kansas City, Missouri. The
audit covered contract years 2006 through 2008. The audit was conducted pursuant to the
provisions of Contract CS 1948-A; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations
(CFR) Chapter I, Part 890. The audit was perfonned 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 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 rate, FEHBP Contracts/Members
March 31
which is defined as the best rate offered to
either of the two groups closest in size to 12,000
the FEHBP. In contracting with 10,000
community-rated carriers, OPM relies on
carrier compliance with appropriate laws 8,000
and regulations and, consequently, does not 6,000
negotiate base rates. OPM negotiations
relate primarily to the level of coverage and 4,000
other unique features of the FEHBP. 2,000
The chart to the right shows the number of o
2006 2007 2008
FEHBP contracts and members reported by • Contracts 5,434 4,089 4,911
the Plan as of March 31 for each contract fJMembers 13,096 9,885 10,911
year audited.
The Plan has participated in the FEHBP since 1984 and provides comprehensive medical
services to the FEHBP as a mixed-model plan. Primary health care services are provided to Plan
members throughout the Kansas City metropolitan area in Kansas and Missouri. In 2008, the
Plan merged its plan code 7W, which covers the Wichita, Kansas area, into plan code HA. The
last audit conducted by our office covered contract years 2002 through 2005. All noted
exceptions were resolved and amounts questioned were returned to the FEHBP.
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.
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 2006 FEHBP Premiums Paid to Plan
through 2008. For these contract years, the FEHBP
paid approximately $128.9 million in premiums to
$50
the Plan. The premiums paid for each contract year
audited are shown on the chart to the right. $40
$30
OIG audits of community-rated carriers are designed
to test carrier compliance with the FEHBP contract, $20
applicable laws and regulations, and OPM rate
$10
instructions. These audits are also designed to
provide reasonable assurance of detecting errors, • Revenue
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 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
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 Kansas City, Missouri during March
and April 2009. Additional audit work was completed at our offices in Washington, D.C. and
Jacksonville, Florida.
Methodology
We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates were accurate, complete, and valid. 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 ofthe 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
1. 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 2006 through
2008. Consequently, the audit did not identify any questioned costs.
2. Procedural Deficiency
Claims Review - Payment for Non-Covered Services
According to FEHBP Program Carrier Letters 2006-14 and 2007-09, the Office of Personnel
Management requires aJJ carriers to keep on file aJJ 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, prescription drugs, and
coordination of benefits, bundling of claims, and non-covered benefits according to the
FEHBP benefit brochures.
Our review of the 2007 and 2008 FEHBP claims data shows that the Plan paid for claims that
related to elective abortion, which is a non-covered benefit according to the FEHBP benefit
brochure. We queried claims data during the experience period of2007 (January 1,2004
through December 31,2005) and 2008 (January 1,2005 through December 31, 2006). We
found that there were seven instances of the Plan inappropriately paying for this benefit. The
total paid amount was $1,860 for 2007 and $2,480 for 2008. We notified the Plan of our
results and requested an explanation for payment of these claims. The Plan agreed that the
abortion claims were paid erroneously.
We addressed this issue as a procedural item because the amounts in question did not have a
significant impact on the premium rates for 2007 or 2008.
Plan's Comment (See Appendix):
The Plan states it has no concerns with the audit finding or the recommendation.
Recommendation
We recommend that the contracting officer require the Plan to monitor its claims system that
tracks elective abortions so that these claims are being reviewed and rejected as a non-covered
benefit.
5
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group
Auditor-In-Charge
Auditor
, Auditor
Chief
, Senior Team Leader
6
Appendix
COVENTRY
T Hral/Il farr al Kansas. Inr
2009 HOY - 2 AM II: 55
October 19, 2009
_ n n e l Managemcllt
Office of the Inspector General
1900 E Street, NW
Room 6400
Washington, DC 20415-1100
RE: Draft Report - Report No. IC-HA-OO-09-035
Dea_
Coventry Health Care of Kansas, Inc. ("Coventry") is in receipt orthe draft report dated
September 21, 2009 regarding the above reference audit. We appreciate the opportunity
to review and provide comments.
At this time, Coventry has no concerns with the item noted, the recommendation
provided, or the posting of the report on the DIG webpage. We look forward tG receiving
a copy of the final document.
If you have any questions, please feel free to call me at
Sincerely,
Director, Policy and Compliance
8320 Ward Porkway • Kansas City, Missouri 64114
816-221-8400 • Toll Free. 1866795·3995 • Web Address: www.cnckansas.com
Audit of the Federal Employees Health Benefits Program Operations of Coventy Health Care of Kansas, Inc
Published by the Office of Personnel Management, Office of Inspector General on 2009-12-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)