oversight

Audit of the Federal Employees Health Benefits Program Operations at JMH Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2010-12-15.

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
Subject:

          Audit of the Federal Employees Health Benefits
            Program Operations at JMH Health Plan



                                                         Report No. 1C-J8-00-J 0-025

                                                         Date: December 15, 2010




                                                                    -- CAUTlON·-
Thi~   audit   r~port   hs   bf~n   distrihuttd   I(l   Ftdtral offidals who art ffSponsible ror 1M administration of the lIuditd program, This
ludit report ml~' contain ()I'oprietlr), dltl ""bleb Is protttltd by fet1erallaw (IR IJ.:S.C. I?(5). lllererort. wllilt th Is audit r('port Is
."aibble under the Frudom of Information A~I and made Muilahle 10 tht pllblk on Ih t OIG wrbpal':t, n ulion nreds to lit uc~i"l'd
bffort rtle-sing Iltt rfporl to Ihe guttal public u it may fon'ain propritlilry inrormation thlll"'as n;odaCled rrom the publ icly
di,tributed copy.
                              UN ITED STATES OFFICE OF PERSONNEL MANAGEMENT 

                                                 Wa shington, DC 204 15 



   Oflic~ of the
tn~pector Genera!




                                                AUDIT REPORT 




                                       Federal Employees Health Benefits Program 

                                    Community-Rated Health Maintenance Organization 

                                                     JMH He.lth Plan
                                         Contract Number CS 2870 - Plan Code J8 

                                                    Miami, Florida 




                           Report No. IC-J8-00-IO-02S                       Date: December 15, 2010




                                                                            Michael R. Esser
                                                                            Assistant Inspector General
                                                                              for Audits




        ...ww.o pm.l o\l                                                                         ww .... usa J OI)$.~O.
                          UNITED STATES OFFICE OF PERSONN EL MANAGEMENT 

                                                Washingwn , DC 204 15 



  Office of Ihc
Inspector General




                                          EXECUTIVE SUMMARY 





                                Federal Employees Health Benefits Program 

                             Community-Rated Health Maintenance Organu..ation 

                                            JMH Health Plan 

                                 Contract Number CS 2870 - Plan Code J8 

                                             Miami, Florida 




                    Report No. I C-J8-00-IO-025                      Date: December 15, 2010

         The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
         Program (FEHBP) operations at JMH Health Plan (Plan). The audit covered contract years 2004
         through 2009 and was conducted at the Plan' s office in Miami, Florida. Additional audit work
         was perfonned in our field offices in Jacksonville, Florida, and Cranberry Township,
         Pennsylvania.

         This report questions $1,137,147 for defective pricing in contract years 2004 through 2008. The
         questioned amount includes 5969,239 for inappropriate health benefit charges and $167,908 due
         the FEHBP for lost investment income, calculated through October 31, 2010. We found that the
         FEHBP rates were developed in accordance with the Office of Personnel Management's rules
         and regu lations in 2009.

         For contract year 2004, we determined that the FEHBP's rates were overstated by $1 09,034 due
         to defective pricing. More specifically, the Plan did not apply the appropriate trend factor as
         shown in the rate filing to the FEHBP 's rates. In addition, the Plan overstated the retention factor
         and infertility rider used to develop the FEHBP's rates.

         For contract year 2005. we determined that the FEHBP's rates were overstated by $130,306 due
         to defective pricing. More specifically, the Plan did not apply a discount given to a simi larly




                                                                                                 www .us ajo b •. g oy
sized subscriber group (SSSG), the State of Florida, to the FEHBP's rates. and the Plan
overstated the retenti on factor and inferti li ty rider used to develop the FEHBP's rates.

For contract year 2006, we determined that the FEHEP's rates were overstated by $148,465 due
to defective pricing. More specifically, the Plan did not apply the discount given to the SSSG,
James E. Scott Community Association, Tnc. _                to the FEHBP's rates, and the Plan
overstated the retention factor and inferti lity rider used to develop the FEHBP's rates. The Plan
also charged the FEHEP an unallowable extension of coverage loading.

For contract year 2007, we determined that the FEHBP's rates were overstated by $181 ,261 due
to defective pricing. More specifica lly, the Plan overstated the unpaid claims, manual pharmacy
rate, retention factor, and infertility rider used to develop the FEHBP rates. The Plan also
charged the FEHBP an unallowable extension of coverage loading.

For contract year 2008, we determined that the FEHBP's rates were overstated by $394.192 for
the high option and $5,981 for the standard option due to defective pricing. More specifically,
the Plan did not apply the discount given to the SSSG, _         to the FEHBP's rates, and the
Plan overstated the unpaid claims, manual trend factors, retention factor, and infertility rider used
to develop the FEHBP 's rates. The Plan also charged the FEHBP an unallowable extension of
coverage loading.

Consistent with the FEHEP regulations and contract, the FEHBP is due $167,908 for lost
investment income, calculated through October 31, 2010, on the defective pricing findings. In
addition, we recommend that the contracting officer recover lost investment income starting
November 1, 2010, until all defective pricing amounts have been returned to the FEHBP.




                                                  II
                                                         CONTENTS 



                                                                                                                                  Page

     EXECUTIVE SUMMARy............................................................................................... i 


 I. INTRODUCTION AND BACKGROUND ..................................................................... 1 


II. 	 OBJECTIVES, SCOPE, AND METHODOLOGY ......................................................... 3 


III. 	 AUDIT FINDINGS AND RECOMMENDATIONS ....................................................... 5 


     PremiUlll Rates ................................................................................................................ 5 


     1. Defective Pricing.......................................................................................................... 5 


     2. Lost Investment Income ............................................................................................. 11 


IV. 	 MAJOR CONTRIBUTORS TO THIS REPORT .......................................................... 13 


     Exhibit A (Summary of Questioned Costs) 


     Exhibit B (Defective Pricing Questioned Costs) 


     Exhibit C (Lost Investment Income) 


     Appendix (JMH Health Plan's September 27,2010, response to the draft report) 

                     I. INTRODUCTION AND BACKGROUND 


Introduction

We completed an audit of the Federal Employees Health Benefits Progmm (FEHBP) operations
at JMH Health Plan (Plan) in Miami, Florida. The audit covered contract years 2004 through
2009. The audit was conducted pursuant to the provisions of Contract CS 2870; 5 U.S.c.
Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter I, Part 890. The audit was
performed by the Office ofPersonnei Management's (OPM) Office of the Inspector General
(OIG), as established by the Inspector General Act of 1978, as amended.

Backeround

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
Retirement and Benefits Office. 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.

Comm uni ty-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 subj ect to the Health Maintenance Organization Act of 1973 (Public Law 93­
222), as amended (i .e., many commun ity-rated carriers arc 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/M~mbers 


which is defined as the best rate offered to                              March 31 


either of the two groups closest in size to           1.200
the FEHBP. In contracting with
                                                      1,000
community-rated carriers, aPM relies on
carrier compliance with appropriate laws                800
and regulations and, consequently, does not
                                                        600                     -         r­
negotiate base rates. aPM negotiations
relate primarily to the level of coverage and           .00                                          -      r­
other unique features of the FEHBP.
                                                        200

The chart to the right shows the number of                0
                                                               2004   2005      2006       2007      2008    2009
FEHBP contracts and members reported by                        451     786                     420   323         301
                                                • ContrIJCts                        39'
the Plan as of March 31 for each contract
                                                o Members                                                        '14
year audited.                                                  '"     1, ' 31       8"         948
                                                                                                     '"
The Plan participated in the FEHBP from 2003 through 2009 and provided health benefits to
FEHBP members in Miami-Dade and Broward Counties. This was the first audit conducted by
aPM of this Plan.

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

                n. 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
provi sions of the laws and regulations governing the FEHBP .


                                                               FEHBP Premiums Paid to Plan

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                j
sufficient, appropriate evidence to provide a          i
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 2004 through 2009. For these contract years, the
FEHBP paid approximately $ J 4.5 million in premiums to the Plan. The premiums paid for each
contract year audited are shown on the chart above.

OIG audits of community-rated carriers are designed to test carrier compliance \\;th the FEHBP
contract, applicable laws and regulations, and aPM rate instruct ions. These audit s 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 circlUllstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

       • 	 The appropriate similarly sized subscriber groups (S SSG) were se lected;

       • 	 the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
           rate offered 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

                                                 J

the various infonnation 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 perfonned at the Plan's office in Miami, Florida, during March 2010.
Additional audit work was completed at our field offices in Cranberry Township, Pennsylvania,
and Jacksonville, Florida.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to detennine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations (FEHBAR), and OPM's Rate Instructions to Community-Rated Carriers to
detennine 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
perfonned other auditing procedures necessary to meet our audit objectives.




                                                 4

              III. AUDIT FINDINGS AND RECOMMENDA nONS

Premium Rates

1. Defective Pricing                                                                    $969,239

  The Certificates of Accurate Pricing the Plan signed for contract years 2004 through 2008
  were defective. In accordance with federal regulations, the FEHEP is therefore due a price
  adjustment for these years. Application of the defective pric ing remedi es shows that the
  FEHBP is entitled to premium adjustments totaling $969,239 (sec Exhibit A). We found that
  the FEHBP rates were developed in accordance with OPM's rul es and regulations for contract
  year 2009.

  FEHBAR 1652.215-70 provides that carriers proposing rates to QPM are required to submit a
  Certificate of Accurate Pri cing certifying that the proposed subscription rates, subject to
  adjustments recognized by OPM, arc market price rates. OPM regul ations refer to a market
  price rate in conjwlction with the rates offered to an SSSG. If it is found that the FEHBP was
  charged higher than a market price (i.e ., the best rate offered to an SSSG), a condition of
  defective pricing exi sts, requiring a downward adjustment of the FEHBP premiums to the
  equivalent market price.

  In 2004, the Plan used a community rating by class (CRC) methodology to develop the
  FEHBP rates and then switched to an adjusted community rating (ACR) methodology with a
  credit,illity factor used to blend the       and manual rate from 2005         2009. The

                                                 was
  years.                                  on group specific claims experience blended with a
  manual rate, which is adjusted by trend factors, a benefit change factor, high dollar claims, and
  retention in order to detennine the required per member per month (PMPM) revenue needed
  for the renewal period. Once the required PMPM is calculated, a conversion factor and
  premium ratio , or a current PMPM and percentnge increase nre applied to detemline the
  group's renewal rates by billing tier.



                                                                                                    as

                                                               the group includes Plan
                                   as                        analysis of the rates charged to the
                               she,ws that neither group received a di scount.

  We reviewed the FEHBP' s rates and found that the Plan used higher manual trend [actors in
  the FEHBP rate development than the factors supported by the rate filing. Accordingly, we
  reduced the FEHBP's medical and prescription drug (Rx) manual trend facto rs from. and
  •    tol1li  and~, respectively. In addition, we reduced the FEHBP' s retention from

                                                5

_          to _ , as supported by the Plan ' s rate filing. and we reduced the infertility
rider from~ t~ PMPM after the Plan identified the overcharge and provided
actual support. A comparison of our audited line 5 rates to the Plan's reconciled line 5 rates
shows that the FEHBP was overcharged $109,034 in 2004 (see Exhibit B).

Plan's Comments (See Appendix):

                             should not be considered an SSSG because the
                                                            ~~2:0fthe




In addition, the Plan asserts that _            is not a reasonable or adequate retention rate, nor
is it a reflection of the retention mte that JMH Health Plan or other insurers charged to other
groups. The Plan states that it was              to file a rale manual in order to offer a
commercial rate                               However, the manual rating was used sparingly to
quote coverage for              groups         groups above the small employer threshold of 50
employees). As manually rated groups were always immaterial to the Plan's financial results,
this line of business received little                 attention. The Plan contends that the retention
factor used in the FEHBP 's rates                                             I
exceed the percentage used in the                                                    rate
development (i.e., . e rcent in                                                     and 2008).

While the Plan did not specifically mention the use of higher manual trend rates, its
calculation of the liability due the FEHBP shows that it did not accept the audit adjusted
manual trend factors. However, the Plan does agree that the infertility benefit rate should be
changed from ~ PMPM to .PMPM. The Plan re-calculated the FEHBP 's rates for
2004 and detennined that the FEHBP is due $17,349.

OIG's Response to the Plan's Comments:

According to OPM's Community Rating Guidelines, the definition of a provider partner is,
"Employer Groups in which the carrier has a financial interest or there is a risk sharing
             The mere fact that a carrier conducts business with an                     does not
           nrov'ide, panner." The Plan .
                                          PWviae                          fedeiraJ pass­
                     hO'Ne',er,mnpllyproviding funds to an organization does not constitute a
financial '       or risk sharing arrangement. _       does not meet the definition of a
"provider partner" because the relationship between_ and the Plan is not a financial or
risk sharing arrangement. The only relationship between the Plan an d _ is t h a t _
contracted with the Plan to provide health insurance to its employees.



                                                6
                                  10_
The rate filing clearly states that the retention rate is. percent, plus any commission, and that
is also the retention rate charged               Regardless of the retention rate the Plan, or other
insurers, charged to other groups, the FEHBP rates must be equivalent to the lower of the two
SSSG rates, including any discounts or market advantage given to an SSSO. Therefore, we
continue to use a -"ercent retention factor in calculating the audited rates.

We acknowledge the Plan's agreement with the adjustment to the infertility rider PMPM.
However, we do not agree with the use of manual trend factors and a retention factor that is
higher than the factors supported by the rate filing or charged t o _ Therefore, we
continue to question $109,034 in overcharges to the FEHBr in 2004.




fu2005,t~~~                                                                                      ~
SSSGs. We agree with                                                       we   d;;;agree
Plan's selection                                                   the group includes Plan
                                    as                      analysis of the rates charged to
                    shows          group received a . percent discount, which was not
                      . The discount is based on a reduced billed rate and understated Rx
claims used in the experience portion of the rate development. _        did not receive a
discount.

We reviewed the FEHBr's rates and found the group was given a higher retention factor and
infertility rider than what could be supported. We also found an unallowable extension of
coverage loading. Per OPM ' s 2005 Reconciliation Instructions, "claims should reflect
extension of coverage, which means that you should not take the extension of coverage
loading." Because the FEHBP was rated using an ACR methodology in 2005, we removed the
loading since the claims experience should already reflect extension of coverage. In addition,
we reduced the FEHBP's retention factor from "'ercent to aercent as supported by the
Plan's rate filing, and we reduced the infertility rider from~ PMPM to          l1li
                                                                                  PM PM after
the Plan identified the overcharge and provided actual support. A comparison of our audited
line 5 rates to the Plan's reconciled line 5 rates shows that the FEHBP was overcharged
$130,306 in 2005 (see Exhibit B).

Plan's Comments (See Appendix):

As discussed above, the Plan does not agree t h a t _ should be an SSSG. In addition, the
Plan does not agree that a aercent retention factor should be used in the FEHBP's rate
development. The Plan contends the retention factor should be. percent. The Plan agrees
with the recommended adjustments to the infertility rider. However, despite these
disagreements, the Plan does not challenge the audited rates, and the Plan's calculations show
agreement with the $130,306 overcharge to the FEHBP.




                                                7

OIG's Response to tbe Plan's Comments: 


We acknowledge the Plan's agreement with the audited rates and questioned costs fo r 2005. 




In 2006, the Plan selected                                                       SSSG. We
disagree "ith the Plan ' s I                                                    since the group
includes Plan employees, and                                                  were no other
employer groups that contracted with           from 2006 fOf\.vard. Our analysi s of the rates
charged t o _ shows that the group received a . percent discount, which was not
applied to the FEHBP. The di scount was due to a 5 month rate exten sion from April 1, 2007,
to August 31 , 2007, and an understated vision rider. The vi sion rider was missing the 2005
trend o f . percent, which increased it from'" PMPM to ~ PMPM.

We reviewed the FEHBP' s rates and found the group was gi ven a higher retention factor and
infertility rider than what wold be supported. We also found an unallowable extension of
coverage loading. Per OPM's 2006 Rewnciliation Instruction s, "claims should reflect
extension of coverage, which means that you should not take the extension of coverage
loading. " Because the FEHBP was rated using an ACR methodology in 2006, we removed the
loading since the claims experience should already reflect extension of coverage. In addition,
we reduced the FEHBP' s retention from aercent to aercent as supported by the Plan 's
rate filing, and we reduced the infertility rider from...- PMPM to_PMPM after the
Plan identified the overcharge and provided actual support. A comparison of our audited line
5 ratcs to the Plan 's rcconciled linc 5 rates shows that the FEHBP was overcharged $ 148,465
in 2006 (see Exhibit B).

Plan's Comments (See Appendix):

As previously di scussed, the Plan does not agree that _ should be an SSSG. In add ition,
the Plan does not agree that a . percent retention factor should be used to develop the
FEHBP 's rates. Rather, the Plan contends that a . percent retention factor is appropriate.
However, the Plan agrees that the infertility benefit rate should be changed from ~ PMPM
t o . PMPM. The Plan al so agrees that the extension of coverage should be removed from
the FEHBP 's rates. As a result, the Plan' s calculations show $14,150 due the FEHBP for
2006.

OIG's Response to the Plan's Comments:

As discussed above, we do not agree with the Plan 's argument t h a t _ is a provider
partner and therefore ineligible to be an SSSG. In addition, we disagree that the FEHBP's
retention factor should be higher than. percent.

We acknowledge the Plan's agreement with the adjustment to the infertility rider PMPM and
the removal of the extension of coverage loading. However, we continue to apply a .

                                             I

percent SSSG discount to the FEHBP's audited rates and use a . percent retention factor in
our rate development. As a result our analysis contin ues to show that the FEHBP is due
$148,465 for overcharges in 2006.



In 2007, the Plan selected                                                         SSSG. We
disagree with the Plan's selection                                                 since the group
includes Plan employees. Due to the rate exte",iOll,                       elillibleSSSG in this
year, since the renewal date changed from April I,            Septem,ber
there were no eligible SSSGs in 2007.

Duri ng our review of the FEHBP's rates for 2007, we identified five find ings. In addition to
the overstated retention facto r, infertility rider, and unallowable extension of coverage loading
identified in the earl ier years, we found the rates were developed using an overstated unpaid
claim liability and an inappropriate Rx rider.

          apl)lie,d~ to the FEHBP in unpaid claim liab ility, but the support showed
only            The difference was due to a manual override of the unpaid claim liability
                    loading. The Plan commented in the rate development that the .
percent         was .percent higher than the original unpaid claim liability. We adjusted the
unpaid claim     i

The Plan priced the FEHBP using    a_
                     back t o _ as supported.

                                         PMPM Rx rider fo r a $7/$20/$35 Rx benefit leveL
The FEHBP had $5/50 percent Rx benefit level in 2007 and should have been priced using a
_       PM PM Rx rider. We adjusted the prescription dnlg rider to account for the actual
benefits received.

In addition to the two adj ustments above, we reduced the FEHBP 's retention factor from.
percent to ~rcent, as supported by the Plan's rate filing; we reduced the infertility rider
from   l1li PMPM to ~ PMPM, after the Plan identified the overcharge; and we removed
the extension of coverage loading. A comparison of our audited line 5 rates to the Plan ' s
reconciled line 5 rates shows that the FEHBP was overcharged $181,261 in 2007 (see Exhibit
B).

Plan's Comments (See Appendix):

As previously discussed, the Plan does not agree that a . percent retention factor is
appropriate and believes that a .    percent retention factor should be used to develop the
FEHBP rates. However, the Plan agrees with the recommended adjustments to the infertility
rider, the extension of coverage loading, the claim liability adjustment, and the Rx benefit
value adjustment. Based on its calculations, the Plan believes the FEHBP is due $84,995 for
2007.



                                               9

OIG's Response to the Plan's Comments:

As discussed in the olher years, we do not agree that the FEHBP's rates should include a
higher retention factor. We acknowledge the Plan's agreement with adjustment to the
infertility rider PMPM, the removal of the extension of coverage loading, the adjustment to
the unpaid claim liability, and the adjustment to the Rx benefit value. However, we continue
to use a ~rcent retention factor to develop the FEHBP rates in 2007. As a result, our
analysis continues to show that the FEHBP was overcharged $181,261 in 2007.



In 2008, the Plan                                                                 SSSO. We
disagree with the Plan's                                                          since the group
includes Plan employees, and                                                      of the rates
charged to _       shows the group              an ~rcent discount, which was not applied
to the FEHBP. The discount was due to understated medical, vision, and Rx riders. The Plan
                            PMPM base medical rate, but the support showed it should have
been                           .     the Plan charged_ a_PMPM vision rider that
only           one vear ot       Je'ceJ)( trend. This vision rider should have been ~ PMPM
after applying       l""Tenlt"atnd ~rcent trend for 2005 and 2007, respectively. Finally,
the Plan                  a illllPMPM Rx rider, but the support showed it should have
been ~ r Mlr~1 .

During our review of the FEHBP' s rates, we identi fied five findings. In addition to the
overstated retention factor, inferti lity rider, and unallowable extension of coverage loading
identified in the earlier years. we found the rates were developed using an overstated unpaid
claim liability and overstated manual trend factors.

                           to the FEHBP in unpaid claim liabi lity, but the support showed it
                           . The difference was due to the Plan applying 4 additional months
of unpaid claim        i      the prior years' (2005 ) experience period in addition to the 12
months of the current experience period (2006). We removed the additional four months of
unpaid claim liability.

The Plan applied manual trend factors of~nd _               to the FEHBP's medical and Rx
riders. Because the base rates are from the April 2005 rate tiling. the FEHBP ' s trend factors
should adjust the base rate forward by 11 quarters from the second quarter of2005 to the first
quarter of 2008. With a medical trend o.     percent and an Rx trend of. percent, we
adjusted the trend factors down to ~ for medical and ~ for prescription drug.

In addition to the two adjustments above, we reduced the FEHBP's retention factor from.
percent to. percent as supported by the Plan 's rate filing, we reduced the infertility rider
from ~MPM to ~ PM PM after the Plan identified the overcharge, and we removed
the extension of coverage loading. A comparison of our audited line 5 rates to the Plan' s
reconciled line 5 rates shows that the FEHBP was overcharged $394, 192 in 2008 for the High

                                              10 

  Option and $5,981 in 2008 for the Standard Option (see Exhibit B). In total, the FEHBP was
  overcharged $400,173 in 2008

  Plan's Comments (See Appendix):

  As previously discussed in this report, the Plan contends ~ is not an SSSG because
  it is a provider partner. Therefore, the Plan removed the ~ercent SSSG discount from its
  calculations. Also, the Plan contends tha. percent is not a reasonable retention factor, and
  therefore, used ~ercent in its calculations. The Plan does agree with the adjustments to
  the FEHBP's rate development to reduce the infertility rider PMPM, remove the extension of
  coverage loading, reduce the unpaid claim liability, and reduce the manual trend factors.
  Based on the Plan 's calculations, it contends that the FEHBP is due $24,210 for 2008 high
  option rates. The Plan did not re-calculate the standard option rates due to materiality.

  OIG's Response to the PIan'S Comments:

  As discussed in greater detail above, _       is not a provider partner, therefore, the group is
  an SSSG and the ~ percent di scount granted to the group should be applied to the FEHBP
  rates. In addition, as previously discussed, we disagree that a . percent retention factor is not
  reasonable and continue to use . percent in the development of the FEHBP 's audited rates.

  We acknowledge the Plan 's agreement with the adjustments to the infertility rider, extension
  of coverage loading, unpaid claim liabi lity, and the manual trend factor s. Based on these
  adjustments, as well as the adjustment to the retention factor and application of the ~
  percent SSSG discount. we continue to question $394 ,192 and $5 ,981 in overcharges to the
  high and standard option rates, respectively. In total, the FEHBP was overcharged $400,173
  in 2008.

  Recommendation I

  We recommend that the contracting officer require the Plan to return $969,239 to the FEHBP
  for defective pricing in contract years 2004 through 2008.

2. Lost Investment Income                                                                 S167,908

  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 s in
  contract years 2004 through 2008. We determined that the FEHBP is due $167,908 for lost
  investment income, calculated through October 31, 2010 (see Exhibit C). In addition, the
  FEHBP is entitled to lost investment income for the period beginning November 1, 20 10, until
  all defective pricing amounts have been returned to the FEHBP.

  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 Certiticate of Accurate Pricing, the rate shall

                                                 II 

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's Comments (See Appendix):

The Plan did not address this issue.

Recommendation 2

We recommend that the contracting officer require the Plan to return $167,908 to the FEHBP
for lost investment income for the period January 1, 2004 through October 31, 2010. In
addition, we recommend that the contracting officer recover lost investment income on
amounts due for the period beginning November], 201 0, until all defective pricing amounts
have been returned to the FEHBP.




                                            12 

            IV. MAJOR CONTRIBUTORS TO THIS REPORT


Community·Rated Audits Group

                  Audilor- in-Charge

                   Staff Auditor

                     Staff Audi tor


                   Chief

                 Sen ior Team Leader




                                       13 

                                                                             Exhibit A




                                               .JMH Health Plan
                                       Summary of Questioned Costs




Defective Pricing Questioned Costs:


      Contract Year 2004 
                                        $109,034
      Contract Year 2005 
                                        $130,306
      Contract Year 2006 
                                        $148,465
      Contract Year 2007 
                                        $181,261
      Contract Year 2008 
                                        $400,173


                Total Defective Pricing Questioned Costs:                         $969,239


      Lost Investment Income:


                     Total Questioned Costs:                                    $1.LJ 7. 14Z
                                                                                     f: XllmtT U
                                                                                      l'a g<' [ uf J



                                                  Ji\UI Hea ltb Plan
                                       Ol'rect.i~·ePricing Questi oned Costs




FEHBP Lin~ 5 - Reconci led Rate




                                                               -• -•
FEBUP Line 5 - ,'uditcd Rate

Overcharg<.!

To Annua lize O~'e fc h arge:




                                                               - -
   3/3 1/04 enrollment
   l'ay Periods                                                   26           1J!
Subtotal

Tota l 2004 Defective !'ricing Questioned Costs




FEI 10l' Line 5 -ltcconc iled Rate




                                                                -• -•
FEl-IllP Li ne 5 - Audited Rate




To Annualize Overcharge:




                                                                -
  313 1/05 enro ll ment
   ]IllY Period ~                                                  2"          26
Subtotal

Total :::!005 [)efective Prk ing QUi!stiollcd Costs                                    SUlJ..JlIJl
                                                                                              E~ hihi l   IJ
                                                                                              PII !!e 2 00



                                                 JMII Heallh Plan 

                                      Infecti \'(' Prici ng Q Ul.'S titl ftetJ Costs 





FEHOP Line 5 • Rccollci icd Kal e




                                                                   -•.. -•.
FEHOI> Line 5 . Audited Rat,;

Ovcl"I;hargc


To Annuul ize Overcharge:




                                                                   - - -
   J(\ 1/06 enroll ment
   Pay I>c riods
Sublol:!!

Tota l 1006 Defective Prici ng Qu~sti o ncd Costs




rEl-lllP Line 5 • Reconci led Rate




                                                                   -• -•
r EUBP Line 5 . Audi ted Rat e

Overcha rge

To Annuali ze Overcharge:
   3/31107 enrollme nt
   f'ay Pe riods                                                                         16
Subtotal

Total ~007 Defective Pricing Questioned ('...osiS
                                                                                            t :,lhihil U
                                                                                                   J of J
                                                                                           1'.11;1.'




                                                         JMlllh.'alfh Pla n 

                                                 Oe(eeliw Pricing Q uestiollt"d C osts 


200N Iligh O l).ion

f EH Ul' Line 5 - Reconci led Kal e




                                                                        -• -
• 

FEHBP Line 5 - Audited Kat.:

Ovuchrlrge

To A nn ua lize Overch"r!,;c:




                                                                        -
   3/31101S {'nrol1 menl
   Pay Periods
Subtota l                                                                   "
TOI.a 12008 High Opiioo [).:f':Cli vc
    Prici ng Questioned COSIS                                                               SJ'}-'. I'J2

2008 Sia ntiard O,,'ion




                                                                           ..  

FEHBP Line 5 - Reconciled Rate




                                                                        -
FEHIW Line 5 - Au dited Klllc

O\'erchargc

To r\ nnual ize O vercharge:




                                                                         • -

   3/3 1/08 enrollment
   Pay Periods
                                                                            I
                                                                            2!i
Subtotal

Tot,tl l 008 SI:lIIdard Option Defe ct i ~ c
   Pricin:; Questioned CoSIS

Toll1 l 2008   Ik,j~::~ . i\'e   Pricing Qllestiol1ed COSt);

TOilal Ocf«l in~ Pridll;; QUCS1M.Illt'(I Costs
                                                                                                                                                                                                               EXHIBIT ('




                                                                                                   JMH Healtll Plan
                                                                                                Lost hl\"f'stmt"ut Income



                                                                                                                                                                                                                                  II
  Year                                                                   1005                   2()06                   2007                  2008                   2009                   2010                   Total           ,\
Audit Findings:

  Ddccri'n2 Pricing                                    <, 1119.1.134         $130,306               SI48A65                 $181.261              $400,173                      $11                     SO             S9f,q,~3l1lI'
                                                       $109,034               S 130,306             $14~,465                $18l,261              $'100,173                    SO                      SO 

                                                       51O<),03,j             S239.340              S387,805                $569,066              $969,239               $969,23'1              $!)69,239 


           /\ vg Intt.:rest Rate        year)            4150%,                 4375~o               5.4375%                   5.500'}o            4.9375%                  5.250%              3.1875% 


                  OIl PrioI Yt'aro;; Findings-:                 SO              Sn70                    513,014                $21.329               $28,098                550,885                525,745 


                                                          $::J17
                   Cum:llf Yt:rll,S Interest· _ _ _ _ _..;.::.::.:.:..._         $2,850
                                                                         _ _ _ _..::.:::.:.:.._         $4,036
                                                                                                _ _ _ _.::.:.:;:;;::.:..._        $.1,985
                                                                                                                           _ _ _ _::..:.:.:..;:;:.:..._ _ _ _....;::;:.;:::.:..:_     SO _ _ _ _ _ _.::.:._
                                                                                                                                                                   59,879 _ _ _ _ _ _.::.:._        SO
 _ _ _....;:;;.:..:;:.:.jl

    Total C'lHmuati\,c lntl:!rest Calcuh"ih:d
              Throu"h October 31. 2010'                   $2.317                SVJ20                   517,050                S26.314               $37,977                $50,885
                                                                                                      Appendix
                                                                                     I )) Soll!h Mi.l.fui   IhnHR'

                                                                                    S",,,; I I I)
                                                                                     Mia",i . H" ..-i&, .U IJO
                                                                                     l'I","e: J IJ'l · 'l;''i -J 7()U
                                            ZGIODeT ·· 4 AH 8:   i .:                r n: .iO':; · ':;,j'l · 51 11
                                                                                     Email ; inql.liri n("' ill1hhp.(u,"




September 27, 20 I 0



                           Audit ( jroup
Ullel. c.ornnlUllIl'y··K 'Hea
U.s. Oni ce "rl'monnel Management
Office orlhe In spcctor (jeneral
1900 F Street. N W
Room 6400
Washington , D.C. 204 1S-II OO


Self! via hard copy a"d CD ;1/ Miao.m ft Wonl formal


D c a r _:

JMII llealth Plan (JMII) has recci\ ed Ihe drall audit rcsult s from the U.S. Office or I'.:rsonnci
Management (OPM) detailing the Audit hlldings and Recommendations for Ihe Federal I:mrloyecs
Ilcallh BCIl..;fil Program ( FI::II BP). We appreciate the opporlUnity 10 provid.: comments regardi ng the
dralt rcp<l rt.

In review ur the Audit Findings . .IIl d Recommendations. JM H discovered three general item s th at
warrant cOlllm.:n t which Me common to m ultip le plan year.; being reviewed . Thcse comments <.Irc
discuss..:d in the "Gencral ltems" section oflhis leUa. Olher commenls are specific 10 a plan year and
are included in lhe ·· Plan . . 'car Ilem s" seclion .

In additi on to ou r comments. we ha\'e incl ud ed re spon sc calcu lations in this leller which arc rcllcetivc
of our comments.


C,£NERAL ITEMS




                                Deleted by OIG - l'iot relevant to the Final Report
Page 2 of 12




2. Retention

In each year, the JMH retention was reduced by aPM to 10% in the draft Audit Findings and
Recommendations.


manual updates reflected a . base retention charge plus a variabl e commission charge. As
commission charges are not applicable to the Federal Group. OPM believes that no more than
retention rate is appropriate.
                                                                                                a.
The OPM rationale for lowering the retention each year is that the 2002 rate filing and subsequent rate




A brief discussion of the rate manual is warranted. JMH is a public subsidiary of the Public Health
Trust of Miami-Dade county. The company's primarily line of business is a Medicaid HMO which
provides selVice to low income residents of Miami-Dade               1MB entered the commercial market
with the intent                                                            including employees of the
health plan                                      were     i               manual to participate in this
market                    I          county rates were based on the group's experience. The manual \\'as
used sparingly to quote coverage for mid-size groups (small groups above the small employer
threshold of 50 employees). As manually rate groups were always immaterial to JMH 's financial
results. this line of business received little management attention.

JMH asserts that .,/0  is not a reasonable or adequate retention rate, nor is it a reflection of the
retention rate that JMH charged to other groups. The table below displays the retention rates charged
to each group for each year. The retention level applied to the groups in the table received significant
attention from the Chief Financial Officer. _       is not included in the table as the enrollment was
small and the group was renewed without direct approval by the Chief Financial Officer.
Page 3 of 12




In preparation for our response, we also reviewed the retention level of other large group carriers in
Florida, further supporting the market unreasonableness of a 10% retention level.

                                I Retention




Tn our response calculations, we have applied the retention rate in the reconciliation which does not
exceed the retention rates of our commercial groups reviewed by the Chief Financial Officer.



3. SSSG Selection

_        is a "provider partner", defined by OPM as an "Employer Group in wh ich the carrier has an
interest or there is a risk sharing arrangement." Provider partners should be excluded from SSSG
consideration.

  JMH Health Plan is a subsidiary of the Public Health Trust of Miami-Dade county. _              was a
pub licly funded social service agency that worked with county agencies and served Miami's inner city.
      The county partnered with _        and had a strong interest in the viability of the agency and
                   uncollected health premiums were allowed to sustain the agency.

The federal government has recognized the link between Miami-Dade county and _          as the U.S.
Department of Housing and Urban Development pursued a claim against Miami-Dade County due to
unsatisfactory use of federal funds that the county steered 1 0 _ projects. For further information,
http;II................miamiherald.coml2010/07/ 19/ 173 7900/agencys-fai lures-leave-trail-of.h1ml#ixzz 1OZpFLNOC 



In our response calculations, we have removed the discounts to the Federal Group that were based
upon discounts applied to _       in the draft audit results.
Page 4 of 12




PLAN YEAR ITEMS

2004 Contract Year

The Audit Findings and Recommendations indicate that                            . not receive a discount.
Alternatively, the Audit Findings and Recommendations .                                     received a
lower manual trend factor and that "Any trend factor used for the Federal group must           same as
the trend factor the carrier used for other groups." The referenced instructions refer to ACR gu idance
in the OPM instructions; ACR guidance is not applicable to the Federal Group in 2004.

ACR trend factors are applied to prior claims experience to project future experience. Manual trend
factors are not factors that are multiplied by claims experience to project future experi ence. Manual
trend factors are intended to update the base rate for timing differences, and can be equall y expressed
as a prior base rate and a trend factor or an updated base rate.

In the case                        if a lower base rate was applied, it should be recognized as a
                                     table below shows the manual rate discount in the Initial Rate
Calculation relative to the Revised Rate Calculation which does not include a discount. The discount
is minimal as the group rate is based primari ly on experience. The actual rates charged are higher than
the Revised Rate Calculation; therefore, no effective discount was appl icd.




         Rate Cak:ulatim


As discussed in the general items section, a .        retention level is appropriate for the Federal Group.
JMH agrees with OPM's comment that the rate for the infcn ility rider should be reduced. The chart
below illustrates the initial rate calculalions. the draft aud it results, and the calculations reflective of
our response comments.
Page 6 of 12




The calculation below reflects the chart above and the corrected enrollment.



 FEHBP line 5 - Reconciled Rate
 FEHBP line 5 - Aud ited Rate


 Overcharge


 To Annualize Overcharge: 

                                      --
    3/31/04 enrollment 

                                      •• ••
    Pay Periods 

 Subtotal


 Total 2004 Defective Pricing Costs
                                      --                            $17,349

2005 Contract Year

JMH does not challenge the audited rate in the draft pricing results. The calcu lation below reflects the
corrected enrollment.

 FEHBP line 5 - Reconciled Rate 

 FEHBP line 5 - Audited Rate 



 Overcharge


 To Annualize Overcharge: 

                                      --
    3{31/05 enro ll ment 

                                      •• ••
    Pay Pe riods 

 Subtotal


 Total 2005 Defective Pricing Costs
                                      --                              $130,306

2006 Contract Year

We have removed the discounts to the Federal Group that were based upon discounts applied to
_        in the draft audit results. As discussed in the general items section, a . retention level is
appropriate for the Federal Group. JMH agrees with OPM's comments that the rate for the infertility
rider should be reduced and the extension of coverage loading should be removed. The chart below
includes the calculations reflective of our response comments.
~
Page 8 of 12




The calculation below reflects the chart above and the corrected enroll ment.


                                      Self     Family
 FEHBP line 5 - Reconciled Rate
 FEHBP line 5 - Audited Rat e


 Overcharge


To Annualize Overcharge:
                                      --
     3/31/06 e nrollm e nt 

                                      • •
     Pay Periods
 Subtotal 


Total 2006 Defective Pricing Cost s
                                      --  26        26 




                                                                      $14,150



2007 Contract YeaT

As discussed in the general items section, a _       retention level is appropriate for the Federal Group.
JMH agrees with OPM's comments that the rate for the inferti lity rider should be reduced and the
extension of coverage loading should be removed. We also agree with the recommended claim
liabili ty adjustment and Rx bene fi t value adjustment. The chart below includes the calculat ions
reflective of O Uf response comments.
September 27, 2010
Page JO of 12




The calculation below reflects the chart above and the corrected enrollment.



 FEHBP Line 5 - Reconciled Rate 

 FEHBP Line 5 - Audited Rate           -­
                                       Self



                                       --
                                               Family 





 Overcharge


 To Annualize Overcharge :
                                       --
      3/31/07 enrollment
                                       • •
      Pay Periods
 Subtotal


 Total 2007 Defect ive Pricing Costs
                                       -- 26        26



                                                                      $84.995




2008 Contract Year

We have removed the discounts to the Federal Group that were based upon discounts applied to
_       in the draft audit results. As discussed in the general items section, a ~/o retention level is
appropriate for the Federal Group. JMH agrees with OPM 's comments that the rate for the infertil ity
rider should be reduced and the extension of coverage loading should be removed. We also agree with
the recommended claim liability adjustment and adjustment of the manual trend factors. The chart
below includes the calculations reflective of our response comments. (The chart reflects the 2008 High
Option; due to materiality, we did not review the 2008 Standard Option but would have similar
comments.)
The calculation below reflects the chart above and the corrected enrollment.


                                         Self Family 

 FEHBP line 5 • Reconciled Rate          __               

 FEHBP line 5 - Audited Rate             __               



 Overcharge


 To Annualize Overcharge:
                                         --
        3/31/0B enrollment
                                         • •
_
        Pay Pe riods
 Subtota l


         2008 Defective Pricing Cost s
                                         -- 26       26



                                                               $24,210




CONCLUSION

Thank you for the opportunity to provide comments regarding the draft report. We are available to
discuss any clarifications yo u may require regarding our commenLs.

Sincerely,




cc: _              Wakely Consu lting Group, Inc .