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 2016-03-31.

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

  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 

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                         the Inspector General staff, agency
                      employees, and the general public. We
                    actively solicit allegations of any inefficient
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                     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


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                         Room 6400
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                                                                           Report No. 1C-IM-00-15-032