oversight

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)

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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