oversight

Audit of the Federal Employees Health Benefits Program Operations at Fallon Community Health Plan

Published by the Office of Personnel Management, Office of Inspector General on 2014-07-30.

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
                 Fallon Community Health Plan

                                          Report No. 1C-JG-00-14-010

                                          Date:             July 30, 2014




                                                      -- 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, 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.
                                                     AUDIT REPORT



                                   Federal Employees Health Benefits Program
                                Community-Rated Health Maintenance Organization
                                         Fallon Community Health Plan
                                    Contract Number CS 1917 - Plan Code JG
                                            Worcester, Massachusetts


                                                                                                    July 30, 2014
                 Report No. 1C-JG-00-14-010                                          Date:




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



                                                      -- 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, 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




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                            Fallon Community Health Plan
                       Contract Number CS 1917 - Plan Code JG
                               Worcester, Massachusetts


         Report No. 1C-JG-00-04-010                    Date:
                                                                  July 30, 2014


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at Fallon Community Health Plan (Plan). The audit
covered contract year 2011, and was conducted at the Plan’s office in Worcester, Massachusetts.
Based on our audit, we have no questioned costs. However, we found that the Plan applied an
inappropriate charge and loadings to the FEHBP rates in contract year 2011.

We determined that the FEHBP was charged for two wellness benefits called “It Fits” and “Oh,
Baby.” These wellness benefits were listed in the brochure under the Non-FEHB benefits
available to Plan members section and are not part of the FEHBP contract, and therefore cannot
be part of the FEHBP premiums.

We also determined the FEHBP was charged a state assessment for mass vaccines. State taxes,
fees or other monetary payments (i.e., state assessments) are not chargeable to the FEHBP as
stated in the 2011 Rate Instructions to Community Rated Carriers.

Finally, the Plan applied an incorrect retention load in the FEHBP rate development. The Plan’s
rating methodology called for       percent, however, the Plan used percent for the FEHBP.
After making these corrections to the FEHBP rates, we found there was no material cost impact
to the 2011 FEHBP rates.
                                                     CONTENTS

                                                                                                                        Page

     EXECUTIVE SUMMARY .............................................................................................. i

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

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

III. AUDIT FINDINGS AND RECOMMENDATION ........................................................ 5

     1. Premium Rate Review ............................................................................................... 5

     2. Pricing Errors (Procedural Finding) .......................................................................... 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 7

     Appendix (Fallon Community Health Plan’s June 10, 2014 response to the draft report)
                     I. INTRODUCTION AND BACKGROUND 


Introduction

We completed an audit of the Federal Employees Health Benefi ts Program (FEHBP) operations
at Fallon Community Health Plan (Plan). The audit covered contract year 2011 , an d was
conducted at th e Plan's offi ce in Worcester, Massachusetts. The audit was conducted pursuant to
th e provisions ofConti·act CS 1917; 5 U .S.C. Chapter 89; and 5 Code of Federal Regulations
(CFR) Chapter 1, Patt 890. The audit was perfon ned by the Office of Personnel Management's
(OPM) Office of the Inspector General (OIG), as established by the Inspector General Act of
1978, as amended.

Background

The FEHBP was established by th e Federal Employees Health Benefi ts 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 Healthcare and Insurance Office. The provisions of the Federal Employees Health
Benefits Act ar e implemented by OPM through regulations codified in Chapter 1, Pali 890 of
Title 5, CFR. Health insuran ce coverage is provided through conu·acts with health insurance
can iers who provide service benefi ts, indemnity benefi ts , or comprehensive medical services.

Commlmity-rated caniers patticipating in the FEHBP are subj ect to various federal, state an d
local laws, regulations, and ordinan ces. While most can iers are subject to state jurisdiction,
many are fi.ll'ther subject to the Health Maintenance Organization Act of 1973 (Public Law 93­
222), as am ended (i.e. , many community-rated caniers are federally qualified) . In addition,
pruticipation in th e FEHBP subjects the cruTiers to the Federal Employees Health Benefits Act
and implementing regulations promulgated by OPM.


The FEHBP should pay a market price rate,                     FEHBP Contracts/Members
which is defmed as the best rate offered to                           March 31
                                                       2,500 . - - - - - - - - - - - - - - - - 1
either of the two groups closest in size to the
FEHBP. In conu·acting with community­                  2,000                    ........

                                                                                 .......
                                                                                ........
rated cruTiers, OPM relies on catTier                                           ... . .. .... ..... . .. ....
                                                       1,500
                                                                                ........

                                                                                 .......
complian ce with appropriate laws an d
regulations an d, consequently, does not
                                                       1,000
negotiate base rates. OPM negotiations relate
primru·ily to th e level of coverage an d other          500
unique features of the FEHBP.
                                                           0+--­
The chrut to the right shows the number of
FEHBP conu·acts and members rep01ted by
th e Plan as ofMru·ch 31, 2011.


                                                  1

The Plan has participated in the FEHBP since 2011 and provides health benefits to FEHBP
members in the Massachusetts area. The last audit of the Plan conducted by our office was a rate
reconciliation audit that covered contract year 2010. There were no findings related to that audit.




                                                2
                II. 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
provisions of the laws and regulations governing the FEHBP.

Scope

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
sufficient, appropriate evidence to provide a 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 year 2011. For this year, the FEHBP paid
approximately $15.8 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 OPM’s 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:

        • The appropriate similarly sized subscriber groups (SSSG) were selected;

        • 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
the various information systems involved. However, nothing came to our attention during our
audit testing utilizing the computer-generated data to cause us to doubt its reliability. We believe
that the available data was sufficient to achieve our audit objectives. Except as noted above, the
audit was conducted in accordance with generally accepted government auditing standards,
issued by the Comptroller General of the United States.

                                                 3
The audit fieldwork was conducted at the Plan’s office in Worcester, Massachusetts during
November 2013.

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 determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, 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
              III. AUDIT FINDINGS AND RECOMMENDATION

1. Premium Rate Review

   Based on our audit, we have accepted the Plan’s FEHBP rates for contract year 2011 and
   have no questioned costs.

2. Pricing Errors (Procedural Finding)

   The Plan made the following pricing errors for contract year 2011:

   •   Non-FEHB Benefits: We determined that the FEHBP was charged for two wellness
       programs called “It Fits” and “Oh, Baby.” “It Fits” provides reimbursements to local
       fitness centers, Weight Watchers, and school sports programs. “Oh, Baby” is a health
       and wellness program for birth, baby, and beyond and provides pre-natal vitamins, car
       seats, and a child care book. These wellness programs were listed in the benefit brochure
       under the Non-FEHB benefits available to Plan members section and are not part of the
       contract, and therefore cannot be part of the premiums. The Plan incorrectly charged the
       FEHBP           per-member-per-month (PMPM) for the “It Fits” program and $
       PMPM for the “Oh, Baby” program. As a result, we removed these charges from our
       audited FEHBP rate development.

   •   State Assessment for Mass Vaccines: We determined the FEHBP was charged a state
       assessment for mass vaccines. This assessment funds a state program that provides
       vaccinations to children of low income families in Massachusetts. The assessment is not
       related to the vaccine benefit provided to FEHBP members. The Plan incorrectly charged
       the FEHBP          PMPM for this state assessment. As stated in the 2011 rate
       instructions, “5 U.S.C. 8909 prohibits the imposition of taxes, fees, or other monetary
       payment, directly or indirectly, on FEHBP premiums by any State.” As a result, we
       removed this charge from our audited FEHBP rate development.

   •   Retention Load: We determined the Plan applied an incorrect retention load in the
       FEHBP rate development. The Plan’s rating methodology called for a          percent
       retention load, however, the Plan used percent for the FEHBP. The Plan’s retention
       table was based on the number of subscribers and was consistently used for all groups
       reviewed. As a result, we used the     percent retention load in our audited FEHBP rate
       development.

   After making these corrections, we found there was no material cost impact to the 2011
   FEHBP rates.

  Plan’s Comments (see Appendix):

  The Plan agrees with our findings.

                                               5
Recommendation 1

Going forward, we recommend that the contracting officer require the Plan to:

    •   Exclude all charges associated with Non-FEHB benefits provided to plan members,
        including costs associated with the “It Fits” and “Oh, Baby” programs;

    •   Exclude all charges related to the state assessment for mass vaccines; and

    •   Follow its standard rating methodology, OPM rate instructions, FEHBP regulations,
        and the contract when developing FEHBP premiums.




                                            6
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                , Auditor-In-Charge

                   , Lead Auditor


                   Chief

                , Senior Team Leader




                                       7
                                       APPENDIX
From:
Sent: Tuesday, June 10, 2014 1:50 PM
To: Potter, Shane E.
Subject: RE: Draft response

                                           Please take this email as our agreement with your
findings that pricing variances are minimal and we agree that no action need be taken.

Thank you,




Sr. Director of Underwriting
Fallon Community Health Plan (Fallon Health)