oversight

Audit of the Federal Employees Health Benefits Program Operations at MD - Individual Practice Association, Inc.

Published by the Office of Personnel Management, Office of Inspector General on 2013-08-06.

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 MD - Individual Practice
                      Association, Inc.



                                           Report No. 1C-JP-00-13-031

                                           Date: August 6, 2013




                                                      -- 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
                                 MD - Individual Practice Association, Inc.
                                 Contract Number CS 1935 - Plan Code JP
                                           Cypress, California



               Report No. 1C-JP-00-13-031                                          Date:       08/16/13




                                                                                      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
                       MD - Individual Practice Association, Inc.
                       Contract Number CS 1935 - Plan Code JP
                                 Cypress, California


         Report No. 1C-JP-00-13-031                   Date: 08/06/13


The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at MD - Individual Practice Association, Inc. (Plan). The
audit covered contract years 2010 and 2011. The audit was conducted at the Plan’s office in
Cypress, California. We found that the FEHBP rates were developed in accordance with
applicable laws, regulations, and the Office of Personnel Management’s Rate Instructions to
Community-Rated Carriers for the years audited.




                                              i
                                                    CONTENTS

                                                                                                                   Page

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

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

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

III. RESULTS OF THE AUDIT ............................................................................................ 5

IV. MAJOR CONTRIBUTORS TO THIS REPORT ............................................................ 6
                     I. INTRODUCTION AND BACKGROUND
Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at MD - Individual Practice Association, Inc. (Plan). The audit covered contract years 2010 and
2011, and was conducted at the Plan’s office in Cypress, California. The audit was conducted
pursuant to the provisions of Contract CS 1935; 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 Healthcare and Insurance 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 Benefits Act
and implementing regulations promulgated by OPM.

The FEHBP should pay a market price                             FEHBP Contracts/Members
                                                                       March 31
rate, which is defined as the best rate
offered to either of the two groups closest
in size to the FEHBP. In contracting with           120,000

community-rated carriers, OPM relies on             100,000
carrier compliance with appropriate laws
                                                     80,000
and regulations and, consequently, does
not negotiate base rates. OPM negotiations           60,000
relate primarily to the level of coverage            40,000
and other unique features of the FEHBP.
                                                     20,000

The chart to the right shows the number of                0
FEHBP contracts and members reported by                               2010             2011
                                                    Contracts        49,078           46,740
the Plan as of March 31 for each contract           Members         115,636          113,697
year audited.



                                                1
The Plan has participated in the FEHBP since 1983 and provides health benefits to FEHBP
members in the Washington, D.C., Maryland, Northern Virginia and Richmond areas. The last
audit of the Plan conducted by our office was in 2012 and covered contract year 2012. The prior
audit did not identify any deficiencies. The last full scope audit of the Plan conducted by our
office was in 2009 and covered contract years 2005 and 2007 through 2009. The prior OIG full
scope audit revealed the Plan paid non-covered claims, but these claims were not material to the
overall audit and there were no questioned costs.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. Since the audit concluded that the Plan’s rating of the FEHBP
was in accordance with applicable laws, regulations, and instructions, a draft report was not
issued.




                                                 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
                                                                   FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government
                                                                   $600
auditing standards. Those standards require that




                                                      Millions
                                                                   $500
we plan and perform the audit to obtain
                                                                   $400
sufficient, appropriate evidence to provide a
                                                                   $300
reasonable basis for our findings and conclusions
                                                                   $200
based on our audit objectives. We believe that                     $100
the evidence obtained provides a reasonable                          $0
basis for our findings and conclusions based on                              2010           2011
                                                                 Revenue    $502.2         $535.4
our audit objectives.

This performance audit covered contract years
2010 and 2011. For these years, the FEHBP paid approximately $1.04 billion in premiums to the
Plan, as shown on the chart above.

OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP
contract, applicable laws and regulations, and OPM Rate Instructions to Community-Rated
Carriers. 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
                                                 3
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 Cypress, California during February
2013. Additional audit work was completed at our office located 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. 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 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 policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
                            III. RESULTS OF THE AUDIT
Our audit showed that the Plan’s rating of the FEHBP was in accordance with applicable laws,
regulations, and OPM’s Rate Instructions to Community-Rated Carriers for contract years 2010
and 2011. Consequently, the audit did not identify any questioned costs and no corrective action
is necessary.




                                               5
            IV. MAJOR CONTRIBUTORS TO THIS REPORT

Community-Rated Audits Group

                  , Auditor-in-Charge

               , Auditor



                  ., Chief

                 , Senior Team Leader




                                        6