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 GLOBALHEALTH, INC. Report Number 1C-IM-00-15-032 March 31, 2016 -- 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 GlobalHealth, Inc. Report No. 1C-IM-00-15-032 March 31, 2016 Why Did We Conduct The Audit? What Did We Find? The primary objectives of the audit This report questions $378,002 for inappropriate health benefit were to determine if GlobalHealth, charges to the FEHBP in contract year 2011. The questioned Inc. (Plan) developed the Federal amount includes $345,372 for defective pricing and $32,630 due to Employees Health Benefits Program the FEHBP for lost investment income, calculated through (FEHBP) premium rates using February 29, 2016. Specifically, our audit identified the following: complete, accurate and current data, and that the rates were equivalent to In contract year 2011, the Plan incorrectly calculated the the Plan’s Similarly-Sized Subscriber FEHBP’s step-up factor by applying incorrect enrollment Groups (SSSGs), as provided in data to the calculation. Additionally, the Plan did not apply Federal Employees Health Benefits a percent SSSG discount to the FEHBP rates. Both Acquisition Regulation 1652.215- errors resulted in a $345,372 overcharge to the FEHBP. 70(a). Additional tests were performed to determine whether the The FEHBP is also due $32,630 for lost investment income, Plan was in compliance with the calculated through February 29, 2016, on the defective provisions of the laws and regulations pricing finding. In addition, we recommend that the governing the FEHBP. contracting officer recover lost investment income starting March 1, 2016, until all defective pricing amounts have What Did We Audit? been returned to the FEHBP. Under contract 2893, the Office of the We found that the FEHBP rates were developed in accordance Inspector General completed a with applicable laws, regulations, and the Office of Personnel performance audit of the FEHBP’s Management’s rules and regulations in contract year 2012. rates offered for contract years 2011 and 2012. Our audit fieldwork was conducted from July 13, 2015, through July 17, 2015, at the Plan’s office in Oklahoma City, Oklahoma. _______________________ Michael R. Esser Assistant Inspector General for Audits i ABBREVIATIONS FEHBAR Federal Employees Health Benefits Program Acquisition Regulations FEHBP Federal Employees Health Benefits Program OIG Office of the Inspector General OPM U.S. Office of Personnel Management Plan GlobalHealth, Inc. SSSGs Similarly-Sized Subscriber Groups U.S.C. United States Code 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 1. Defective Pricing .....................................................................................................5 2. Lost Investment Income...........................................................................................6 IV. MAJOR CONTRIBUTORS TO THIS REPORT ....................................................8 Exhibit A (Summary of Questioned Costs) Exhibit B (Defective Pricing Questioned Costs) Exhibit C (Lost Investment Income) Appendix (GlobalHealth, Inc.’s response to the draft report, received on January 19, 2016) REPORT FRAUD, WASTE, AND MISMANAGEMENT IV. MAJOR CONTRIBUTORS I. BACKGROUND TO THIS REPORT This final report details the audit results of the Federal Employees Health Benefits Program (FEHBP) operations at GlobalHealth, Inc. (Plan). The audit covered contract years 2011 and 2012, and was conducted at the Plan’s office in Oklahoma City, Oklahoma. The audit was conducted pursuant to FEHBP contract CS 2893; 5 U.S.C. 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 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 premium rate that is equivalent to the best rate given to either of the two groups closest in size to the FEHBP. In contracting with community-rated carriers, OPM relies on carrier compliance with appropriate laws and regulations and, consequently, does not negotiate base rates. OPM negotiations FEHBP Contracts/Members relate primarily to the level of coverage March 31 and other unique features of the FEHBP. 1,400 1,200 The chart to the right shows the number of FEHBP contracts and members 1,000 reported by the Plan as of March 31 for 800 each contract year audited. 600 The Plan has participated in the FEHBP 400 since 2005 and provides health benefits to FEHBP members in the State of 200 Oklahoma. The last full scope audit of 0 the Plan conducted by our office 2011 2012 Contracts 586 621 covered contract years 2006 through Members 1,279 1,372 2010 and identified three procedural 1 Report No. 1C-IM-00-15-032 issues. Based on the Plan’s provided documentation, OPM’s Audit Resolution Group closed the recommendations. 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 preparation of this report and are included, as appropriate, as the Appendix to the report. 2 Report No. 1C-IM-00-15-032 IV. OBJECTIVES, II. MAJOR CONTRIBUTORS SCOPE, ANDTO 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 (SSSGs), as provided in the 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 FEHBP Premiums Paid to Plan accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, $6 appropriate evidence to provide a reasonable basis $5 Millions for our findings and conclusions based on our $4 audit objectives. We believe that the evidence $3 obtained provides a reasonable basis for our $2 findings and conclusions based on our audit $1 objectives. $0 2011 2012 Revenue $4.2 $5.3 This performance audit covered contract years 2011 and 2012. For these years, the FEHBP paid approximately $9.5 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 to Community-Rated Carriers (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: 3 Report No. 1C-IM-00-15-032 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 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 from July 13, 2015, through July 17, 2015, at the Plan’s office in Oklahoma City, Oklahoma. Methodology We examined the Plan’s federal rate submission and related documents as a basis for validating its Certificates 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-IM-00-15-032 III. AUDIT FINDINGS AND RECOMMENDATIONS 1. Defective Pricing $345,372 The Certificate of Accurate Pricing the Plan signed for contract year 2011 was defective. In accordance with federal regulations, the FEHBP is therefore due a rate reduction for this year. Application of the defective pricing remedy shows that the FEHBP is due a premium adjustment of $345,372 (see Exhibit A). We found that the FEHBP rates were developed in accordance with applicable laws, regulations, and the Office of Personnel Management’s rules and regulations in contract year 2012. The Plan FEHBAR 1652.215-70 provides that carriers proposing rates to OPM miscalculated the are required to submit a Certificate of Accurate Pricing certifying that FEHBP’s step-up the proposed subscription rates, subject to adjustments recognized by factor and did not OPM, are market price rates. OPM regulations refer to a market price apply an SSSG rate in conjunction with the rates offered to an SSSG. SSSGs are the discount, resulting Plan’s two employer groups closest in subscriber size to the FEHBP. If in a $345,372 it is found that the FEHBP was charged higher than the market price rate overcharge in (i.e., best rate offered to an SSSG), a condition of defective pricing contract year 2011. exists, requiring a downward adjustment of the FEHBP premiums to the equivalent market price rate. 2011 The Plan selected the as an SSSG for contract year 2011. We agree with this selection. The Plan incorrectly calculated the step-up factor for the FEHBP. The Plan used single contracts and family contracts instead of single contracts and family contracts in the calculation. Consequently, we replaced the Plan’s derived step-up factor with our audited step-up factor. Additionally, the rates charged to the SSSG showed that the received a percent discount, which was not applied to the FEHBP’s reconciled rates. Because the FEHBP is entitled to a discount equivalent to the largest discount given to an SSSG, we recalculated the FEHBP’s rates using the percent discount given to the and our audited step-up factor. A comparison of our audited rates to the Plan’s reconciled rates shows that the FEHBP was overcharged $345,372 in contract year 2011 (see Exhibit B). 5 Report No. 1C-IM-00-15-032 Plan Comments (see Appendix): The Plan does not dispute the audit findings. Recommendation 1 We recommend that the contracting officer require the Plan to return $345,372 to the FEHBP for defective pricing in contract year 2011. 2. Lost Investment Income $32,630 In accordance with FEHBP regulations and the contract between OPM and the Plan, the FEHBP is entitled to recover lost investment income on the defective pricing finding in contract year 2011. We determined the FEHBP is The FEHBP is due due $32,630 for lost investment income, calculated through $32,630 in lost February 29, 2016 (see Exhibit C). In addition, the FEHBP is entitled investment income to lost investment income for the period beginning March 1, 2016, until all defective pricing amounts have been returned to the FEHBP. due to FEHBP overcharges. FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP contract was increased because the carrier furnished cost or pricing data that was not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge caused by the defective data. In addition, when the rates are reduced due to defective pricing, the regulation states that the government is entitled to a refund and simple interest on the amount of the overcharge from the date the overcharge was paid to the carrier until the overcharge is liquidated. Our calculation of lost investment income is based on the United States Department of the Treasury’s semiannual cost of capital rates. Plan Comments (see Appendix): The Plan does not dispute the audit findings. Recommendation 2 We recommend that the contracting officer require the Plan to return $32,630 to the FEHBP for lost investment income, calculated through February 29, 2016. We also recommend that the contracting officer recover lost investment income on amounts due for the period 6 Report No. 1C-IM-00-15-032 beginning March 1, 2016, until all defective pricing amounts have been returned to the FEHBP. 7 Report No. 1C-IM-00-15-032 IV. MAJOR CONTRIBUTORS TO THIS REPORT COMMUNITY-RATED AUDITS GROUP , Auditor-in-Charge , Auditor , Senior Team Leader , Senior Team Leader , Group Chief 8 Report No. 1C-IM-00-15-032 EXHIBIT TO IV. MAJOR CONTRIBUTORS A THIS REPORT GlobalHealth, Inc. Summary of Questioned Costs Defective Pricing Questioned Costs Contract Year 2011 $345,372 Total Defective Pricing Questioned Costs $345,372 Lost Investment Income $32,630 Total Questioned Costs $378,002 Report No. 1C-IM-00-15-032 EXHIBIT B IV. MAJOR CONTRIBUTORS TO THIS REPORT GlobalHealth, Inc. Defective Pricing Questioned Costs Contract Year 2011 Self Family FEHBP Line 5 - Reconciled Rate $ $ FEHBP Line 5 - Audited Rate $ $ Bi-weekly Overcharge $ $ To Annualize Overcharge: March 31, 2011 enrollment Pay Periods 26 26 Subtotal $ $ $345,372 Total Defective Pricing Questioned Costs $345,372 Report No. 1C-IM-00-15-032 EXHIBIT C GlobalHealth, Inc. Lost Investment Income Year 2011 2012 2013 2014 2015 29-Feb-16 Total Audit Findings: 1. Defective Pricing $345,372 $0 $0 $0 $0 $0 $345,372 Totals (per year): $345,372 $0 $0 $0 $0 $0 $345,372 Cumulative Totals: $345,372 $345,372 $345,372 $345,372 $345,372 $345,372 $345,372 Avg. Interest Rate (per year): 2.5625% 1.8750% 1.5625% 2.0625% 2.2500% 2.5000% Interest on Prior Years Findings: $0 $6,476 $5,396 $7,123 $7,771 $1,439 $28,205 Current Years Interest: $4,425 $0 $0 $0 $0 $0 $4,425 Total Cumulative Interest Calculated Through February 29, 2016: $4,425 $6,476 $5,396 $7,123 $7,771 $1,439 $32,630 Report No. 1C-IM-00-15-032 APPENDIX 701 NE 10th ST | Ste. 300 | Oklahoma City, OK| 73104-5403 Received as an email attachment on January 19, 2016. January 18, 2016 U.S. Office of Personnel Management Office of the Inspector General 800 Cranberry Woods Drive, Suite 270 Cranberry Township, PA 16066 To Whom It May Concern: We have reviewed the Draft Audit Report dated December 4, 2015, regarding the Audit of the Federal Employee Health Benefits Program Operations at GlobalHealth, Inc. for contract years 2011 and 2012. We do not dispute the findings identified for contract year 2011. No findings were identified for contract year 2012. Sincerely, Tayla Harris, CPA SVP, Chief Financial Officer GlobalHealth, Inc. Report No. 1C-IM-00-15-032 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-IM-00-15-032
Audit of the Federal Employees Health Benefits Program Operations at GlobalHealth, Inc.
Published by the Office of Personnel Management, Office of Inspector General on 2016-03-31.
Below is a raw (and likely hideous) rendition of the original report. (PDF)