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 -- CAU T I ON - 'r his IIl d" re port hn btu dislribul t d to Federa l offida ls \01 ho . et r u pOlu ihlr for lht adnlinislra ,iull of Iht a lld ilt d p roJ!,u m. Thi s IIll di! re port "' . )' conlil ln pro prlrlu)' du a ",'hi th i s pr oret ted b)' Ftdrn l ll l\' ( 1II l tS.Co 190!i). 'r nererer e. w hlle I hls l ud il r cpur l is lIu il. blt und er Iht I-'",worn of Inform.tion '\('IIOd made I~. illl b it 10 lht public on Ih t O IG webpe ae, n Ulion nrt dl to be ur rdstd hf furf rr lr ulng Iht fe-pur' loth" genera l publi c n II ma)' tunlii n p rop rlrlllr')' infor mllilun Ihlll loi n r«l llt lt d fn' m Iht pu bllrl y d i~lri b ul r d fUPY. 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
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)