oversight

Audit of the Federal Employees Health Benefits Program Operations at GlobalHealth, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2011-08-17.

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

                                                                  u.s. OFFICE OF PERSONNEL MANAGEMENT
                                                                               OFF ICE OF T HE INSPECTOR GENE RAL
                                                                                                  OFF ICE OF AUDITS




Final Audit Report
S ubject:

           Audit of the Federal Employees Health Benefits
             Program Operations at GlobalHealth, Inc.


                                                     Report No. IC-I M-OO-I I-026

                                                    Date:           Au g u s t        17 ,       20] J




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                                  UNITED STATES Of FICE OF PERSO NNEL MA NAGEM ENT
                                                           Wa ~h ifl S('Jl1 .   DC 20-115


   O llk'o: 1)f1h\'
1 1I ~pet· l ur Ge~rn'




                                                  EXEC UTIVE SUMMARY





                                         Federa l Employees Health Benefit s Pro gram

                                    C om mun ity- Ra ted He.. Uh .\ 1a in lcn a n('c Orl?,ani:t:llliol1

                                                       Globa li lca lth, lnc.

                                             Contra ct Number 2893 - Plan Code 1M

                                                  Oklahoma City, Ok lahom a




                          Report No. l C-IM-OIl-II .1l26                               Dat e : August 1 7 , 2 0 1 1

         The Offi ce of the Inspector General perfo rmed an a udit of the Fede ra l Emp loyees Healt h Benefits
         Program (FEHBP) opera tions at Uloball lealth. Inc. (PI,Ul). The audit covered ce ntmet years
         2006 thro ugh 20 10 and was conducted at the Plan ' s offic e in O klahoma Cit)'. Oklahoma .
         Additio nal Held work was pe rformed at o ur o ffice in Cran berry To wnsh ip, Pennsylvania. During
         o ur review we co uld nol co nclude if the FEI mp received a market rate for any year und er
         review. Howeve r. we wen: ab le to determine that the FE III1P ra tes we re de veloped in
         accordance w ith the Plan' s esta bl ished rating practices and acce pted th e FEI mr rates as fair and
         reasonable fo r all years .

         During our re vie w of the Plan's FEI IBr ra ting. we found three procedural issues that the Plan
         mu st address. The fi rst two concern the Plan' s 200t) rat ing yea r. In 2009 the Plan i} did not
         a pply a pre sc riptio n drug rebate to the FEI IllP ; a nd            in
                                                                        did not a pply the co rrec t bene fit ch..mgc
         factor to the FEIIBP. We ad justed the 2009 FEI IIl P rates to account lor each issue: ho weve r, the
         moneta ry im pact was not signili cant e nough to resu lt in questioned costs. The th ird. a nd mo st
         significa nt iss ue, is th at the Plan did not ha ve the req uired two Sim ilarly Sized Subscriber Group s
         (SSSGs ) fo r a ny o f the yea rs re vie wed . Th e ssselSarc crucial as the FEIIBP is co mpa red with
         the SS SGs 10 vc rify that the FE I IBP received a ma rket rate for all co ntract years. In 2006, the
         Plan had no viable SS SGs a nd fo r 2007 thro ugh 20 IO. the Plan had only on e gro up that qualified
         as a n SSSG.




           ,,"W W 0P '" ,Il OV
                            UN ITE D STATES OFF ICE OF PERSONNEL MANAGEMENT

                                                 Washington. DC 204 15


   Offi ce ct me
Inspector Ge neral




                                                A UDIT REPORT



                                     Federa l Employees Health Benefits Program

                                  Com munity-Rated Health Maintenance Organization

                                                 Globalllealth, Inc.

                                       Contra ct Number 2893 - Plan Code 1M

                                              Oklahoma City, Oklahoma




                        Report No. l e -I M-00-I1 -026                    Date: Augu s t 1 7, :2 011




                                                                          Michael R. Esser
                                                                          Assista nt Inspector General
                                                                            for Audits




        WWW.Dpm .l!ov                                                                          w~ ,w ,u , aJ o b $ , l O V
                                                             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. 2009 Prescription Drug Rebate Discount .................................................................................. 5

    2. 2009 Incorrect Benefit Change Factor ...................................................................................... 5

    3. Non-Compliance with the Two SSSG Rule .............................................................................. 6

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

     Appendix (GlobalHealth, Inc.’s June 30, 2011, response to the draft report)
The Plan has participated in the FEHBP since 2005 and provides health benefits to FEHBP
members in the Oklahoma City and Tulsa, Oklahoma areas. This is the first audit of the Plan
conducted by our office since the start of its participation in the FEHBP.

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.




                                                 2
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 Oklahoma City, Oklahoma, during
January 2011. 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. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates was 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 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 RECOMMENDATIONS
Premium Rate Review

Based on our audit, we have accepted the Plan’s rating of the FEHBP for contract years 2006
through 2010 and have no questioned costs. However, we found the following issues in our
review that merit corrective action and follow-up:

1. 2009 Prescription Drug Rebate Discount

  The FEHBP reconciliation instructions for contract year 2009 state that all discounts applied
  to an SSSG are to be applied to the FEHBP using the same methodology as the SSSGs. We
  consider a prescription drug (Rx) rebate, in the form of a reduction in pharmacy claims, as a
  discount. Our review of the FEHBP claims determined that an Rx rebate was not applied to
  the FEHBP for the 2009 contract year; however, a       percent Rx rebate was applied to the
  one SSSG reviewed in 2009. The amount of the Rx rebate cost to the FEHBP was not
  significant enough to result in questioned costs. However, the Plan is required to apply all
  discounts to the FEHBP that are applied to the SSSG, which would include the Rx discount.

  Plan’s Comments (See Appendix):

  The Plan will implement enhanced internal controls to ensure the appropriate Rx rebate is
  applied to the FEHBP. The enhanced internal controls will include executive leadership level
  review during the rate development by the Vice President of Finance and the Senior Vice
  President of Government Programs.

  OIG’s Response to the Plan’s Comments:

  We agree with the Plan’s decision to implement enhanced internal controls and executive
  leadership review to ensure the FEHBP receives the appropriate Rx rebate.

  Recommendation 1

  We recommend that the contracting officer require the Plan to ensure that it applies the
  appropriate Rx rebate to the FEHBP using the same methodology as the SSSG.

2. 2009 Incorrect Benefit Change Factor

  During our review we found that the Plan applied an incorrect benefit change factor to the
  2009 FEHBP rate development. We applied the correct benefit change factor to the FEHBP
  audited rate development and found that the FEHBP rates were overstated for the 2009
  contract year. However, the amount of the benefit change factor correction was not significant
  enough to result in questioned costs. Nevertheless, the Plan should take the necessary
  precautions to verify that the correct benefit change factor is appropriately applied.


                                               5
  Plan’s Comments (See Appendix):

  The Plan will implement enhanced internal controls to ensure the necessary steps are taken to
  verify the appropriate benefit change factor is applied to the FEHBP.

  OIG’s Response to the Plan’s Comments:

  We agree with the Plan’s decision to implement enhanced internal controls to verify the
  FEHBP receives the appropriate benefit change factor.

  Recommendation 2

  We recommend that the contracting officer require the Plan to take the necessary precautions
  to verify that the correct benefit change factor is appropriately applied to the FEHBP.

3. Non-Compliance with the Two SSSG Rule

  The FEHBP reconciliation instructions for community-rated carriers participating in the
  program in contract years 2006 through 2010 state that each plan must select two SSSGs per
  plan code and must identify these groups in the submissions to OPM. The SSSG concept was
  developed to ensure that the FEHBP receives an equitable and reasonable market-based rate.
  At the time of reconciliation, OPM determines the FEHBP rate by selecting the lower of the
  rates derived by using rating methods consistent with those used to derive the SSSG’s rates.
  OPM focuses on the rating methods used for the two SSSGs to determine if a plan
  appropriately derived the Federal group rates.

  During our review, we found that the Plan did not have SSSGs for the 2006 contract year and
  only one SSSG for contract years 2007 through 2010. Therefore, OPM cannot be assured the
  FEHBP received an equitable and reasonable market-based rate for contract years 2006
  through 2010.

  Plan’s Comments (See Appendix):

  The Plan states it has taken corrective action to position itself for future growth. These
  actions include the hiring of a larger leadership staff; opening another corporate office in
  Tulsa, Oklahoma; enhancing their information and technology systems; changes in their
  commercial growth and sales strategies; an enhanced participating provider network; and an
  expanded service area.

  OIG’s Response to the Plan’s Comments:

  We agree with the Plan’s decisions for capturing future commercial growth. By adding
  commercial groups, other SSSGs would be available to audit. In addition, since OPM is
  transitioning from the SSSG methodology to the Medical Loss Ratio (MLR) methodology in
  2013, the SSSG issue will resolve itself.

                                               6
Recommendation 3

We recommend that the contracting officer require the Plan to follow all rules and rating
instructions, including those regarding the requirement to identify and compare the FEHBP to
two SSSGs, until the transition to the MLR methodology.




                                            7
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                , Auditor-in-Charge

                   , Auditor


                   , Deputy Assistant Inspector General for Audits

                 , Senior Team Leader




                                           8
                                                                                                        Appendix




                                            GLOBALHEALTH

                                             I N C 0 1\ !' OltIlT F.D

.\'cn! Via Return Receipt Requested

June 30, 20 11



Melissa D. Brown, Commun ity-Rated Audits Group Chief
U.S. Office of Personnel Ma nagement
Offi ce of the Inspector Ge neral
1900 E Street, NW
Room 6400
Washington, D.C. 204 15·1100

RE:	    Audit of GlobalHealth, Inc. Draft Report No. IC-IM-00-II -026
        Contract No. CS 2893 - Plan Code 1M

Dear Melissa Brown:

Th is lette r and our responses nre provide d in co nnect ion with the dra ft au dit repo rt of the Fed era l
Employees Hea lth Benefits Progra m (FEH BP) opera tions of Glo ball-Iealth, Inc. covering co ntract yea rs
2006 through 20 10. Below we have restated DIG/or M 's recommendations as it relates to the three (3)
procedural issues speci fied in the dra ft aud it report fo llowed by our respon se and act ions:

2009 Pl'cscl'ipf ion Orue; Reb at e Discounl

O IG /O PM Rcconunend ntleu 1 - HMO Com mun ity- Rated FEHBP Carrier to en sure that it applies the
appropriate Rx rebate 10 the FEHBP us ing the same me thodo logy as the SSSG ,

( ; loh a ll ll'Ol llh Rc spu use:
Globall lcnlth m el with its consultin g actu arial firm. Milliman , a s we ll as intern al staff involved ill the
FEIl BP. Global ll calth will implement enhanced inte rnal controls to ensure the appropriate Rx rebate is
applied to the fE l lOP using the sa me me thodology thai Glo balllealth I ISCS in the SSS G. The enhan ced
internal co ntrols will incl ude e xec utive leadership level review and ove rsight during the rate de ve lopm en t
by the Vic e Presi dent of Finance and the Sen ior Vice President ofG ovc rnm c ru Programs.




            70 1 N E lOlh Stree t, S uite 30 0 - Oklahoma C ity, Ok laho ma --73 104-5403
Melissa D. Brown, CR Audits Group Chief                                                               Page 2
J une 3 0, 20 1 1




2009 Incol'rect ncncfit Change Fac ioI'

OI G/OPIH Recommendat ion 2 - HMO Community-Rated FEI-IBP Carrier to take the necessary
precautions to ve rify that the correc t benefi t change factor is appropriately applied 10 the FEI-I BP.

G lo h llll l l'a li h Rl'SIIlIllSC :

Globull lcu lth will implement e nhanced internal controls to ensure the necessary ste ps nrc taken to verify

the co rrec t bene fit change' factor is a ppropria tely upplic d   10   the FEI lRP ,


Non-COllmlia lice with the Two SSSG Rille

O IG/OPM Recommen da tion 3 • I-I MO Community-Rated FEUDP Carrier 10 follow all rules and rating
instructions, including those regarding Ihe requirement to iden ti fy and compare the FEHBP to two
SSSGs.

G lo bal flca lth Respon se:
During the scope ofthe audit cover ing years 2006 1hrnugh 20 10 GlobalHcalth followed to the best ofits
ability the rules and rating instructions regarding the requirement to perform alHHIJI FEIIBP Ra te
Recon ciliat io n 10 SSSG:> taking into co nside ration the limit ed portfolio            or
                                                                               contracted SSSG s was limit ed
10 nile ( 1) contracted SSSG ,


G lo bal! Icah h ha... taken the follo wing corrective actions to position itself tor future growth:

Adm inistra tive Operations
     •	   I fired new Pre sident and Ch ie f Executive Officer
     •	   Hired and ad ded live (5 ) new talented executive s on Globn ll lcnhh' s exec utive leadership team
     •	   Opened a ll additional corpo rate office in Tu lsa. Oklah om a

En huu ccd ln for nuniu n Splc rn.. lind T echnology
   •	 Implemented Globall.ink. Glcball lculth' s on-line participating provider network portal during
       lirSI q uarte r 20 10. W ith the im plementation o f Glo ball .ink. partic ipating provider ne twork
       satisfaction has increased as .1 result of Globnl l lcalth' s administrative handling. accuracy and
       t imcliness of authorization requests, claims slaws check!ng , veriflcutiou of IIl CIll ber cli gibil ity. e ll' .
   •	 Inve stm ent ill infor mation systems and information technology

Cllllll ncrcin l ll i\ IO Sales and Growth
    •	 Enhanced li MO Benefit Plans and Product Offerings
    •	 Native A merica n and other fo rm s of Assoc iation s Growth Strategy
    •	 Broker Rel at ionship Stnucgy




                70 1 NE 10lh Street, Suite 300 - Oklahoma City. Oklahoma _. 73 104·5403
Melissa D. J3.roWIl, C R Audit s Grou p Chief                                                    Pnge 3

Ju ne 30, 2 0 11




El1ha lll.'c ll l~: Il · l ici l ):l t iJlg   Prcvl dcr Net work
      •	 Added key participating hC;I11h care systems, network hospitals "Ill! network priuuuy cafe
            physi cians.

1':'IHl utll't1 S ervice A rcu
     •	 Rece ive d state regula tory nppro VllI ill April 20 ! O 10 offe r Co mmerc ial li MO produc ts in all 77
          coun tlcs ill Oklah oma

We appreci ate the opportunity to prov ide our co mmen ts a nd actions addressing the procedura l issues ill

connec tion w ith the draft audit report. Should you have any que stions or need additional information

please feel free to co ntact the Governmen t Programs Accoun t Executive , Faith N ix, or myselfat (405)

280-5656 .




6W~~Pu£1
Debbie Ward
Se nior Vice Pr esiden t - Government Programs
G lobalHca lth, Inc.


Enclosure (I,)

cc:	        Scott Vaughn, Globall-lealth, Inc. Presiden t and Chief Exec utive Officer

            Thy s J. DeYoung, Chicf Hca lth Insurance Group 111 - Insurance Services Pro gram

            Kathryn J. Wick, GIG/OPM Office of Audits - Sen ior Team Leader

            Ro n Rhinehart, a PM Sen ior Con tract ing Sp ecialist

            \Y. Ri ck Dav is, DIG/OPM Co mmun ity-Rated Audits Gro up - Au ditor in Charge

            Garriso n G. Phill is, GIG/OPM Community-Ra ted Aud its Group - Auditor





                   701 NE 101h Stree t, Suite 300 - Ok lahoma City, Oklahoma -- 73 104-5403