Office of Personnel Management, Office of Inspector General | U.S. Office of Personnel Management | Audit of the Federal Employees Health Benefits Program Operations of TakeCare Insurance Company, Inc.

Audit of the Federal Employees Health Benefits Program Operations of TakeCare Insurance Company, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2010-02-22.

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 of TakeCare Insurance

Company, Inc.

Report No. lC-JK-OO-09-045

Date: February 22, 2010

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< This audil report has !:leen distributed to Federal officials who are resronsible for Ihe administration of Ihe audiled program. This
. audit reporl may conlain proprielary dala whicn is prolccted by Federal law (18 U.S.C 1905). Thucfore. while Ihis audil reporl is
available under the Freedom of Informalion Act and made available to Ihe public on Ihe ole webpage, caution needs 10 be exe'"ciscd
. before releasing Ihe report 10 Ihe general public as il may contain proprielary informalion Ihal was redacled from Ihe publicly
dislribuled copy.
UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

Washington, DC 20415

Office of the
Inspector General

AUDIT REPORT

Federal Employees Health Benefits Program

Community-Rated Health Maintenance Organization

TakeCare Insurance Company, Inc.

Contract Number CS 2825-A - Plan Code JK

Tamuning, Guam

Report No. lC-JK-OO-09-045 Date: February 22, 2010

Michael R. Esser
Assistant Inspector General
for Audits

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UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

Washington, DC 20415

Office of the
Inspector General

EXECUTIVE SUMMARY

Federal Employees Health Benefits Program

Community-Rated Health Maintenance Organization

TakeCare Insurance Company, Inc.

Contract Number CS 2825-A • Plan Code JK

Tarnuning, Guam

Report No. lC-JK-OO-09-045 Date: February 22, 201 0 '

The Office of the Inspector General (OIG) performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at TakeCare Insurance Company, Inc. (Plan). The audit
covered contract years 2005 through 2008 and was conducted at the Plan's office in Tamuning,
Guam. During the years covered by the audit, the Plan did not implement five of the FEHB
industry standards for Fraud and Abuse programs as listed in FEHB Program Carrier Letter
2003-23. We found that the FEHBP rates were developed in accordance with the Office of
Personnel Management's rules and regulations in contract years 2005 through 2008.

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CONTENTS

EXECUTIVE SUMMARy · i

I. INTRODUCTION AND BACKGROUND 1

II. OBJECTIVES, SCOPE, AND METHODOLOGy 3

III. AUDIT FINDINGS AND RECOMMENDATIONS 5

1. Premium Rate Review 5

2. Fraud and Abuse Program Review 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT 7

Appendix (TakeCare Insurance Company, Inc. 's November 11,2009, response to the
draft report)
I. INTRODUCTION AND BACKGROUND

Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at TakeCare Insurance Company, Inc. (Plan). The audit covered contract years 2005 through
2008 and was conducted at the Plan's office in Tamuning, Guam. The audit was conducted
pursuant to the provisions of Contract CS 2825-A; 5 U.S.C. Chapter 89; and 5 Code of Federal
Regulations (CFR) Chapter 1, Part 890. The audit was performed 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 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.

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 FEHBP Contracts/Members

Benefits Act and implementing regulations March 31

promulgated by OPM. 10,000
9,000
The FEHBP should pay a market price rate, 8,000
which is defined as the best rate offered to 7,000
6,000
either of the two groups closest in size to the
5,000
FEHBP. In contracting with community
4,000
rated carriers, OPM relies on carrier 3,000
compliance with appropriate laws and 2,000
regulations and, consequently, does not 1,000
negotiate base rates. OPM negotiations relate o
2005 2006 2007 2008
primarily to the level of coverage and other
• Contracts 3,293 3,631 3,478 3,246
unique features of the FEHBP.
ClMembers 9,382 9,563 9,020 8,204

The chart to the right shows the number ofFEHBP contracts and members reported by the Plan
as of March 31 for each contract year audited.
The Plan has participated in the FEHBP since 1998 and provides health benefits to FEHBP
members on the island of Guam. The last full-scope audit covered contract years] 999 through
2003. All questioned costs associated with that audit have been resolved.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
through 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 final report and are
included, as appropriate, as the Appendix.

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.

FEHBP Premiums Paid to Plan

We conducted this performance audit in accordance with

generally accepted government auditing standards.
$50
Those stand.afds require that we plan and perform the

audit to obtain sufficient, appropriate evidence to

CIl
provide a reasonable basis for our findings and
c:

conclusions based on our audit objectives. We believe
~
i $25
that the evidence obtained provides a reasonable basis

for our findings and conclusions based on our audit

objectives.

$0
This performance audit covered contract years 2005
• Revenue
through 2008. For these years, the FEHBP paid

approximately $143.2 million in premiums to the Plan.

The premiums paid for each contract year audited are shown on the chart to the right.

DIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP

contract, applicable laws and regulations, and OPM 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 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 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 performed at the Plan's office in Tamuning, Guam, during April 2009.
Additional audit work was completed at our office in Cranberry Township, Pennsylvania.

Methodology

We examined the Plan's federal rate submissions and related documents as a basis for validating
the market price rates. Further, we examined claim payments to verify that the cost data used to
develop the FEHBP rates were accurate, complete, and valid. 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, and OPM's Rate Instructions to
Community-Rated Carriers to determine the propriety of the FEHBP premiums and the
reasonableness and acceptability of the Plan's rating system.

To gain an understanding of the internal controls in the Plan's rating system, we reviewed the
Plan's rating system's policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.

III. AUDIT FINDINGS AND RECOMMENDATIONS

1. Premium Rate Review

Our audit showed that the Plan's rating ofthe FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions to carriers for contract years 2005 through
2008. Consequently, the audit did not identify any questioned costs.

2. Fraud and Abuse Program Review

We reviewed the Plan's Fraud and Abuse (F&A) Program and interviewed Plan personnel to
detennine compliance with FEHB Program Carrier Letter # 2003-23 (CL 2003-23). CL 2003
23 lists eight industry standards that aPM expects all FEHB plans to have in place to help
address health care F&A within their organization (for both in-house and subcontracted work).
Dming 2005 through 2008, the following five industry standards were not implemented by the
Plan:

1. Anti-Fraud Policy Statement: Publish a policy statement providing the corporate
strategy to address F&A and make it available to employees, enrollees, providers, and
subcontractors.

2. Written Plan and Procedures: Establish written policies and procedures to be followed
by all personnel for the deterrence and detection of fraud.

3. Fonnal Training: Conduct fraud awareness training for all employees, underwriting
departments, and subcontractors. Training should consist of an overview of specific
F&A reporting requirements and debarment policies and procedures to enable
personnel to identifY and handle potentially fraudulent claims submitted.

4. Education: Infonn enrollees about fraudulent and abusive practices via newsletters,
web sites, or other means.

5. Technology: Use fraud protection software to analyze claims data. Software should
evaluate on a prospective claim-by-claim basis and through the retrospective analysis
of claim trends from either providers and/or members.

Prior to 2005, the Plan was owned by PacifiCare Health Plan and operated under the name
PacifiCare Asia Pacific. In 2005, TakeCare became an independent company and did not
maintain PacifiCare Health Plan's formal F&A program.

Failure to implement all eight industry standards increases the risks of fraudulent activities
and potential abuse resulting in unnecessary costs.

Plan's Comments (See Appendix):

The Plan does not agree with the DIG's opinion that its F&A program was insufficient to meet
the requirements set by CL 2003-23. The Plan feels that it attempted to meet the "spirit" of
the regulations. The Plan feels that it made a good faith effort to implement F&A protocols
that were consistent with an organization of their size, based upon the circumstances at the
time.

The Plan is in the process of implementing an Anti-Fraud Program in cooperation with Total
Claims Capture and Control Health, Inc. (TC3). The Plan has provided an Anti-Fraud
Program implementation timeline that lists a completion date of July 11,2010. The Plan is
also in the process of reviewing their provider contract agreement to ensure that no legal
issues will result from any retrospective cost recovery due to F&A. The Plan is currently in
discussion with IC3 to implement post-F&A recoveries.

OIG's Response to the Plan's Comments:

While we recognize that the Anti-Fraud Program developed in conjunction with IC3 is a
positive step in meeting the FEHB industry standards established in CL 2003-23, this program
was not in place during the scope of the audit.

Recommendation 1

We recommend that the contracting officer require the Plan to report on its Anti-Fraud
Program implementation every three months until such time that the contracting officer feels
the Plan is fully compliant with CL 2003-23. The Plan's Anti-Fraud Program will be
reviewed during future audits scheduled by the OIG.

.-Recommendation 2

We recommend that the Plan use fraud detection software to detennine if there were ariy
fraudulent claims paid on FEHBP members during the experience periods used to develop the
FEHBP's rates in contract years 2005 through 2008. Any fraud recoveries should be credited
in the FEHBP rate development. The Plan's fraud detection software efforts will be reviewed
during future audits scheduled by the DIG.

IVo MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

Auditor-In-Charge

Auditor

Chief

Senior Team Leader

e TakeCare~ I P.V. Box 6578 Tamuning, Guam 96931
Telephone : (671) 646-6956
647-3520
.ax (6711
Ap'pendix
2009 NOV 13 AM 10: 30
November 11, 2009

Chief, Community Rated Audits Group

United States Office of Personnel Management

Office of the Inspector General

1900 E Street, NW

Room 6400

Washington, D.C. 20415-1100

- Re: TakeCare Insurance Company Response to Office of the Inspector General Draft
Audit Report (Audit Report No. I C-JK-00-09-045)

Dea

Thank you for extending the deadline to respond to the Office of the Inspector General
(OIG) Draft audit report for TakeCare Insurance Company (Audit Report No. IC-JK
00-09-045) to November 12, 2009 instead of the original October 29, 2009 deadline.
This allowed our organization sufficient time to present a comprehensive response to
the Draft audit report.

The following responds to the audit findings stated in the OIG Draft report:

1. TakeCare appreciates the Office of the Inspector General's opinion that the
interim fraud and abuse program was insufficient to meet the requirements
set forth by the FEHBP Carrier Letter 2003-23. While we do not necessarily
share the same opinion, we do hope you understand that TakeCare attempted
to meet the spirit of the regulations. We made every effort to implement, in
good faith, protocols albeit less fonnalized than the OIG would have
preferred, but consistent with an organization of our size and based upon the
circumstances at the time.

Moving forward, the implementation of the enterprise wide fraud and abuse
program through the assistance of our vendor partner, Total Claims Capture
and Control Health Inc (TC3) will be effective (based on timeline from
TC3). We have attached a detailed timeline for the fraud and abuse program
implementation for your reference.
It was also noted in the draft report that initial Special Investigative Unit
(SIU) team members did not have any law enforcement experience. We have
asked TC3 to provide us with additional team members profile to deal with
this issue. We have attached the profile of these additional SIU team
members. Furthermore, we do not have any Guam contacts with law
enforcement experience but the program implementation will be managed
and monitored by the Underwriting Department through the Corporate
Compliance Officer,

It was also initially mentioned by TakeCare persOlwel that no retro recovery
will occur during the program implementation for fraud and abuse. We
acknowledge that it's important that retro cost recovery should occur. We
are in the process of reviewing our provider contract agreement to ensure
that no legal issues will result from these recoveries. Also, we have engaged
TC3 in discussions to implement post recoveries.

Lastly, we have attached TakeCare's anti-fraud manual that will be a
significant part of the program implementation for this program.

Deleted by OIG - Not relevant to the Final Report

We anticipate that our responses are sufficient to address all procedural findings in
this Draft report and these issues will be deemed resolved in the Final audit report for
TakeCare Insurance Company.

Please do not hesitate to contact me with any concerns or questions.

Respectfully,