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 2016-02-26.

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

U.S. OFFICE OF PERSONNEL MANAGEMENT
     OFFICE OF THE INSPECTOR GENERAL
             OFFICE OF AUDITS




                 Final Audit Report

          AUDIT OF THE FEDERAL EMPLOYEES HEALTH
              BENEFITS PROGRAM OPERATIONS AT
          MD-INDIVIDUAL PRACTICE ASSOCIATION, INC.

                                             Report Number 1C-JP-00-15-035
                                                    February 26, 2016



                                                                -- CAUTION --

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised before
releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.
             EXECUTIVE SUMMARY 

                  Audit of the Federal Employees Health Benefits Program Operations at 

                                 MD-Individual Practice Association, Inc. 

Report No. 1C-JP-00-15-035                                                                      February 26, 2016


Why Did We Conduct the Audit?           What Did We Find?
                                        This report questions $11,363,178 for inappropriate health benefit
The primary objective of the audit      charges to the FEHBP. Specifically, our audit identified the
was to determine if MD-Individual       following:
Practice Association, Inc. (Plan) was
in compliance with the provisions of       	 The Plan underpaid its MLR penalty for contract year 2013,
its contract and the laws and                 as it could not support the capitation and other claim
regulations governing the Federal             adjustment amounts reported in the MLR form as well as
Employees Health Benefits Program             those shown in the claims submission to OPM.
(FEHBP). We verified if the Plan              Additionally, the Plan did not provide documentation to
met the Medical Loss Ratio (MLR)              support the Patient-Centered Outcomes Research Institute
requirements established by the U.S.          fee. As a result, the FEHBP MLR subsidization penalty
Office of Personnel Management                account was underpaid by the Plan in the amount of
(OPM). We also verified if the Plan           $11,363,178.
developed the FEHBP premium rates
using complete, accurate and current       	 The Plan did not provide the claims data to the Office of
data.                                         the Inspector General in the format required by Carrier
                                              Letter 2014-18. Additionally, the Plan’s data submission
What Did We Audit?                            contained information not applicable to the MLR rating and
                                              did not match the values that the Plan used in its 2013 MLR
Under Contract CS 1935, the Office            calculation.
of the Inspector General performed
an audit of the FEHBP operations at        	 The Plan did not comply with Section 5.7(f) of its contract
the Plan. The audit covered the               with OPM, as it did not provide requested data in a
Plan’s 2013 FEHBP premium rate                timely manner, or at all in some cases. Additionally,
build-ups and the MLR submission.             access to the Plan’s subject matter experts, who could
Our audit fieldwork was conducted             have addressed our questions, was restricted.
from March 30, 2015 through
April 10, 2015, at the Plan’s office       	 Finally, the audit showed that the pricing of the FEHBP
in Cypress, California.                       rates was developed in accordance with applicable laws,
                                              regulations, and OPM’s Rate Instructions to Community-
                                              Rated Carriers for contract year 2013.


_______________________
Michael R. Esser
Assistant Inspector General
for Audits
                                                     i
               ABBREVIATIONS


ACA      Affordable Care Act
CFR      Code of Federal Regulations
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
FEHBP    Federal Employees Health Benefits Program
MLR      Medical Loss Ratio
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
PCORI    Patient-Centered Outcomes Research Institute
Plan     MD-Individual Practice Association, Inc.
SSSG     Similarly Sized Subscriber Group
TCR      Traditional Community Rating




                               ii
IV. MAJOR CONTRIBUTORS TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                         Page 

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


          ABBREVIATIONS ..................................................................................................... ii 


  I.	     BACKGROUND ..........................................................................................................1 


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


  III.	   AUDIT FINDINGS AND RECOMMENDATIONS.................................................7


          1. Medical Loss Ratio (MLR) Penalty Underpayment ................................................7 

          2. Carrier Letter 2014-18 Compliance .........................................................................9 

          3. Availability of Records and Access to Subject Matter Experts .............................10 


  IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................12 


          Exhibit A (Summary of Questioned Costs) 


          Exhibit B (MLR Questioned Costs) 


          Appendix (MD-Individual Practice Association, Inc.’s November 13, 2015 and 

          December 23, 2015 responses to the draft report) 


          REPORT FRAUD, WASTE, AND MISMANAGEMENT
IV. MAJOR CONTRIBUTORS
            I. BACKGROUND
                       TO THIS REPORT
This final report details the audit results of the Federal Employees Health Benefits Program
(FEHBP) operations at MD-Individual Practice Association, Inc. (Plan). The audit was
conducted pursuant to the provisions of Contract CS 1935; 5 United States Code (U.S.C.)
Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1, Part 890. The audit covered
contract year 2013, and was conducted at the Plan’s office in Cypress, California.

The FEHBP was established by the Federal Employees Health Benefits Act (Public Law 86-
382), enacted on September 28, 1959. The FEHBP was created to provide health insurance
benefits for federal employees, annuitants, and dependents, and is administered by the U.S.
Office of Personnel Management’s (OPM) 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.

In April 2012, OPM issued a final rule establishing an FEHBP-specific Medical Loss Ratio
(MLR) requirement to replace the similarly sized subscriber group (SSSG) comparison
requirement for most community-rated FEHBP carriers (77 FR 19522). MLR is the proportion
of FEHBP premiums collected by a carrier that is spent on clinical services and quality health
improvements. The MLR for each carrier is calculated by dividing the amount of dollars spent
for FEHBP members on clinical services and health care quality improvements by the total
amount of FEHBP premiums collected in a calendar year.

The FEHBP-specific MLR rules are based on the MLR standards established by the Affordable
Care Act (ACA, P.L. 111-148) and defined by the U.S. Department of Health and Human
Services in 45 CFR Part 158. In 2012, community-rated FEHBP carriers could elect to follow
the FEHBP-specific MLR requirements, instead of the SSSG requirements. Beginning in 2013,
the MLR methodology was required for all community-rated carriers, except those that are state
mandated to use traditional community rating (TCR). State mandated TCR carriers continue to
be subject to the SSSG comparison rating methodology.

Starting with the pilot program in 2012 and for all non-TCR FEHBP carriers in 2013, OPM
required the carriers to submit an FEHBP-specific MLR. OPM required that the FEHBP-specific
MLR threshold calculation take place after the ACA-required MLR calculation, and that any
rebate amounts due to the FEHBP as a result of the ACA-required calculation be excluded from
the FEHBP-specific MLR threshold calculation. Carriers were required to report information
related to earned premiums and expenditures in various categories, including reimbursement for
clinical services provided to enrollees, activities that improve health care quality, and all other
non-claims costs.


                                                1                            Report No. 1C-JP-00-15-035
If a carrier fails to meet the FEHBP-specific MLR threshold, it must make a subsidization
penalty payment to OPM within 60 days of notification of amounts due.

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 Plan reported 34,146 contracts and 82,637 members as of March 31, 2013, as shown in the
chart below.

In contracting with community-rated                   FEHBP Contracts/Members
carriers, OPM relies on carrier compliance                   March 31
with appropriate laws and regulations and,
consequently, does not negotiate base
rates. OPM negotiations relate primarily             90,000
                                                     80,000
to the level of coverage and other unique
                                                     70,000
features of the FEHBP.                               60,000
                                                     50,000
The Plan has participated in the FEHBP               40,000
                                                     30,000
since 1983 and provides health benefits to           20,000
FEHBP members in the Washington, D.C.,               10,000
Maryland, Northern Virginia and                           0
                                                                      2013
Richmond areas. A prior audit of the Plan       Contracts           34,146
covered contract years 2010 and 2011.           Members             82,637
Additionally, a rate reconciliation audit
was conducted on contract year 2012. There were no issues identified in these prior audits.

The preliminary results of this audit were discussed with Plan officials at an exit conference and
in subsequent correspondence. A draft report was also provided to the Plan for review and
comment. The Plan’s comments were considered in preparation of this report and are included,
as appropriate, as the Appendix to the report.




                                                 2                           Report No. 1C-JP-00-15-035
IV. OBJECTIVES,
II.  MAJOR CONTRIBUTORS
                SCOPE, ANDTO THIS REPORT
                          METHODOLOGY
 Objectives
 The primary objective of this performance audit was to determine whether the Plan was in
 compliance with the provisions of its contract and the laws and regulations governing the
 FEHBP. Specifically, we verified whether the Plan met the MLR requirements established by
 OPM and paid the correct amount to the Subsidization Penalty Account, if applicable.
 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 2013. For contract year 2013, the FEHBP paid
 approximately $435.1 million in premiums to the Plan.

 The Office of the Inspector General (OIG) audits of community-rated carriers are designed to
 test carrier compliance with the FEHBP contract, applicable laws and regulations, and the 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 rates charged to the FEHBP are developed in accordance with the Plan’s standard
          rating methodology and the claims, factors, trends, and other related adjustments are
          supported by complete, accurate, and current source documentation; and

        	 The FEHBP MLR calculation is accurate, complete, and valid; claims are processed
           accurately; appropriate allocation methods are used; and, that any other costs
           associated with its MLR calculation are appropriate.

 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


                                                 3	                          Report No. 1C-JP-00-15-035
          the various information systems involved. However, nothing came to our attention during our
          audit utilizing the computer-generated data to cause us to doubt its reliability. We believe that
          the available data was sufficient to achieve our audit objectives. Except as noted above, the audit
          was conducted in accordance with generally accepted government auditing standards, issued by
          the Comptroller General of the United States.

          The audit fieldwork was performed from March 30, 2015 through April 10, 2015, at the Plan’s
          office in Cypress, California.

          Methodology
          We examined the Plan’s MLR calculation and related documents as a basis for validating the
          MLR. Further, we examined claim payments and quality health expenses to verify that the cost
          data used to develop the MLR was accurate, complete, and valid. We also examined the
          methodology used by the Plan in determining the premium in the MLR calculation. Finally, we
          used the contract, the Federal Employees Health Benefits Acquisition Regulations (FEHBAR),
          and the rate instructions to determine the propriety of the Plan’s MLR calculation.

          To gain an understanding of the internal controls in the Plan’s claims processing system, we
          reviewed the Plan’s claims processing policies and procedures and interviewed appropriate Plan
          officials regarding the controls in place to ensure that claims were processed accurately. Other
          auditing procedures were performed as necessary to meet our audit objectives.

          The tests performed, along with the methodology, are detailed below by Medical and Pharmacy
          claims:


                   Medical Claims Sample Selection Criteria/Methodology
                                                                                                             Results
                                             Sample             Sample
Medical Claims       Sample Universe                                                          Sample       Projected to
                                             Universe          Universe     Sample Size
 Review Area            Criteria                                                               Type            the
                                            (Number)           (Dollars)
                                                                                                            Universe?
                                                                            Selected all
                                                                               claims
                                                                            greater than
Coordination of                                                              or equal to
                   Paid claims for
Benefits (COB) –                                           $                  $60,000;      Judgmental          No
                   patients age 65+
Medicare 2013                                                              resulted in 12
                                                                               claims
                                                                              totaling
                                                                             $980,368.




                                                          4                            Report No. 1C-JP-00-15-035
                                                                                                          Results
                                            Sample          Sample
 Medical Claims      Sample Universe                                                       Sample       Projected to
                                            Universe       Universe      Sample Size
  Review Area           Criteria                                                            Type            the
                                           (Number)        (Dollars)
                                                                                                         Universe?
                                                                          Selected all
                                                                             claims
                                                                          greater than
                                                                           or equal to
Member
                   All medical claims                  $                    $99,000;      Judgmental        No
Enrollment
                                                                         resulted in 22
                                                                             claims
                                                                            totaling
                                                                          $2,197,778.
Non-Covered        All claim lines with
Benefits (Radial   LASIK CPT code           No Hits            N/A           N/A             N/A            N/A
Keratotomy)        65771
                   All claim lines with
                   elective abortion CPT                                 Selected 15
Non-Covered        codes 59812, 59820,                                   highest paid
Benefits           59821, 59830, 59840,                    $                claims,       Judgmental        No 
(Abortion)         59841, 59850, 59851,                                    totaling
                   59852, 59855, 59856,                                    $10,762. 
                   59857, 59866

                                                                          Selected all
                                                                              claims
                                                                          greater than
                   Members with ages                                       or equal to
Dependent
                   between 26 and 27                       $                 $1,000;      Judgmental        No
Eligibility
                                                                         resulted in 40
                                                                              claims
                                                                             totaling
                                                                           $298,514.
                                                                         Selected first
                Members with ages
                                                                          20 members
Deceased Member greater than or equal                          N/A                        Judgmental        N/A
                                                                            from the
                to 90
                                                                            universe.
                   Claims containing all
                   CPT codes 82330,
Bundling/
                   82374,82435, 82565,      No Hits            N/A           N/A             N/A            N/A
Unbundling
                   82947, 84132, 84295,
                   84520, 80047, 80048




                                                       5                            Report No. 1C-JP-00-15-035
               Pharmacy Claims Sample Selection Criteria/Methodology

                                                                                                         Results
 Pharmacy Claims       Sample Universe      Sample           Sample                         Sample      Projected
                                                                          Sample Size
   Review Area            Criteria          Universe        Universe                         Type         to the
                                           (Number)         (Dollars)                                   Universe?
                                                                             Auditor
                                                                            randomly
                       Pharmacy claims                                     selected 37
High Dollar Scripts    greater than or                      $              claims from     Judgmental      No
                       equal to $13,000                                   the universe,
                                                                              totaling
                                                                            $723,554.
                                                                          Selected first
                                                                           20 samples
                       Members with
Dependent                                                                    from the
                       ages between 26                          $                          Judgmental      No
Eligibility                                                                 universe,
                       and 27
                                                                              totaling
                                                                             $18,781.
                                                                          Selected first
                       Members with
                                                                          20 members
Deceased Member        ages greater than                            N/A                    Judgmental      N/A
                                                                             from the
                       or equal to 90
                                                                            universe.

        We also examined the rate build-up of the Plan’s 2013 Federal rate submission and related
        documents as a basis for validating the Plan’s standard rating methodology. We verified that the
        factors, trends, and other related adjustments used to determine the FEHBP premium rate(s) were
        sufficiently supported by source documentation. Further, we examined claim payments to verify
        that the cost data used to develop the FEHBP rates was accurate, complete and valid. Finally, we
        used the contract, the FEHBAR, and the rate instructions to determine the propriety of the
        FEHBP premiums and the reasonableness and acceptability of the Plan’s rating system.

        In addition, we examined the Plan’s financial information and evaluated the Plan’s financial
        condition and ability to continue operations as a viable ongoing business concern.




                                                        6                             Report No. 1C-JP-00-15-035
III. AUDIT FINDINGS AND RECOMMENDATIONS

 1. Medical Loss Ratio (MLR) Penalty Underpayment                                    $11,363,178

   The MLR methodology replaced the Similarly Sized Subscriber Group requirements with an
   MLR threshold. Simply stated, the MLR is the ratio of the Federal Employees Health
   Benefits Program (FEHBP) incurred claims (including expenses for health care quality
   improvement) to total premium revenue determined by the Office of Personnel Management
   (OPM). For contract year 2013, the MLR program carriers must meet the OPM-established
   MLR threshold of 85 percent. Therefore, 85 cents of every health care premium dollar must
   be spent on health care expenses. If the MLR threshold is less than 85 percent, a carrier will
   owe a subsidization penalty equal to the difference between the threshold and the carrier’s
   actual MLR.

   MD-Individual Practice Association, Inc. (Plan) calculated an MLR of 85.09 percent and paid
   no penalty to OPM. However, during our review of the Plan’s MLR submission, we found
   the following issues.

   Capitation

   The Plan was unable to support $8,427,735 of physician capitations and $2,724,154 of other
   capitations reported in the Plan’s 2013 MLR filing. To verify the reported capitation
   amounts, we sorted the primary and third party providers by total capitation paid and selected
   the top five largest capitation amounts for both categories. We then requested from the Plan
   the capitation agreements related to the selected providers to support the amounts reported. In
   almost all cases, the provider contracts did not include an amendment for the current year
   capitation rates. Additionally, the member months for the selected providers were not
   available; this is a key component in calculating total capitations paid. Since we could not
   verify any portion of the capitations that we tested, we removed these capitation amounts
   from our 2013 audited MLR calculation.

   Plan Response:

   “The Plan disagrees with … removing the capitation amounts from the MLR calculation.”
   In its response to the Draft report, dated November 13, 2015, the Plan contends that the
   MLR documentation previously supplied, including queries from the General Ledger,
   supports the reported MLR numerator, including capitation. Additionally, the Plan
   provided an illustration of the data components in the MLR numerator. In its corrected
   response dated December 23, 2015, the Plan provided another example of the data
   components reported in the MLR numerator (see the Appendix).



                                             7                              Report No. 1C-JP-00-15-035
OIG Comment:

The Plan was unable to provide the requested capitation agreements to verify the contracted
amount and total capitation applied in the MLR calculation. We maintain that the capitation
amounts included in the MLR numerator cannot be verified and therefore should not be
included.

Other Claim Adjustments

Additionally, the Plan was unable to support $550,241 of claim adjustments related to State
Stop Loss, Market Stability, and Medical Pools and Bonuses added to the 2013 MLR claim
amounts. Since we could not verify these amounts or the reason why they were included, we
removed them from our 2013 audited MLR calculation.

Plan Response:

“The Plan disagrees with the Auditors interpretation that the numbers were in fact
included in the MLR calculation ….” In its November 13, 2015 response, the Plan claims
that the figure removed was not included in the original MLR calculation and, therefore,
should not be removed from the auditor’s calculation. In its corrected response dated
December 23, 2015, the Plan does not specifically address this issue again. However, the
Plan’s Exhibit II shows State Stop Loss, Market Stability, and Medical Pools and Bonuses
as a component of the MLR numerator.

OIG Comment:

The Plan was unable to provide any additional documentation to support the $550,241 in
claim adjustments included in their MLR calculation. Because these claim adjustments could
not be supported, we maintain that we were correct in removing them from our audited
calculation.

Patient-Centered Outcomes Research Institute (PCORI)

The Patient-Centered Outcomes Research Trust Fund fee is a fee imposed on issuers of
specified health insurance policies and plan sponsors of applicable self-insured health plans
that helps to fund the PCORI. According to the Internal Revenue Service (IRS), the PCORI
fee is applicable for policy plan years ending after September 30, 2012, and before October 1,
2019, and is an allowable pass-through cost to the FEHBP. The fee by year varies, however;
for contract years ending after September 30, 2013, and before October 1, 2014, the
applicable amount is $2.00 per average number of lives covered during the policy year.



                                             8                           Report No. 1C-JP-00-15-035
  The Plan was unable to support the $251,192 PCORI fee charged to the FEHBP and we
  contend that the PCORI fee is overstated. Based on the IRS guidance, we applied the $2.00
  per average number of lives to the FEHBP member months for calendar year 2013. The result
  of this calculation was $165,679. Since the Plan could not provide support for its reported
  value and the IRS instructions clearly illustrate how the fee should be calculated, we used the
  $165,679 in our 2013 audited MLR calculation.

  Plan Response:

  The Plan disagrees with the finding and states they are in full compliance with the IRS
  guidance and have appropriately developed the PCORI fee according to this guidance.
  Consequently, the Plan maintains that no adjustment to this fee is warranted.

  OIG Comment:

  The Plan was unable to provide any additional documentation to support the PCORI fee
  charged in the MLR calculation. Therefore, we contend that our audited calculation, which
  used a fee of $165,679, is correct.

  Conclusion

  We removed the capitations and the other claims adjustments from the claims used in our
  2013 audited MLR calculation. Additionally, we recalculated the Plan’s unsupported FEHBP
  PCORI fee based on IRS guidelines and adjusted the Federal taxes and assessments portion of
  the MLR calculation accordingly. Based on these changes, our audited MLR ratio is 82.27
  percent, resulting in an MLR subsidization penalty underpayment of $11,363,178 (see Exhibit
  B).

  Recommendation 1

  We recommend that the contracting officer require the Plan to pay $11,363,178 to the MLR
  subsidization penalty account for contract year 2013.

2. Carrier Letter 2014-18 Compliance                                                Procedural

  Carrier Letter 2014-18 requires all MLR carriers to submit to the OIG detailed FEHBP claims
  data used in its MLR calculations in the format specified in the carrier letter. However, the
  Plan did not provide its claims data in the required format. Additionally, the Plan’s data
  submission contained information not applicable to the MLR rating and did not match the
  values that the Plan used in its 2013 MLR calculation.



                                               9                           Report No. 1C-JP-00-15-035
  Plan Response:

  The Plan acknowledged that there was an issue with the required claims submission.
  Furthermore, the Plan stated that “It was not the intent … to be out of compliance with
  Carrier Letter 2014-18 or any other instruction provided by OPM.” The Plan agrees to
  comply with formatting requirements as outlined by OPM/OIG in the future.

  Recommendation 2

  We recommend that the contracting officer require the Plan to comply with the annual MLR
  carrier letter, which specifies required claims data submissions to the OIG and formatting
  requirements.

3. Availability of Records and Access to Subject Matter Experts                       Procedural

  Contract CS 1935, Section 5.7(f), requires Contractors to “make available at its office at all
  reasonable times the records, materials, and other evidence … for examination, audit, or
  reproduction … .” Section 5.7(d)(1) also states that the OIG “shall have access to and the
  right to examine any of the [Plan’s] directly pertinent records involving transactions related to
  this contract … and to interview any current employee regarding such transactions.”

  However, during the course of the audit we found that the Plan did not provide requested
  data in a timely manner, and in some cases, not at all. Additionally, access to the Plan’s
  subject matter experts having first-hand knowledge of the components of the MLR
  calculation and related source documentation was restricted. Failure of the Plan to
  provide the OIG with the necessary records, materials, evidence, and access to subject matter
  experts to support the MLR submission is in direct violation of the contract and may lead to
  incomplete, inaccurate, and/or invalid cost or pricing data.

  Plan Response:

  The Plan disagrees with the OIG’s characterization that auditor access was restricted, and
  that the subject matter experts were not made available as requested. Furthermore, the
  Plan stated that “Due to the complexity of the MLR process and the varying level of
  specificity required … the Plan made every effort to ensure the appropriate subject matter
  experts were available to provide requested information.”

  OIG Comment:

  During the pre-audit phase of this audit, it was evident that audit requests for documentation
  were not given priority by the Plan. The pre-audit standard information request was not


                                               10                            Report No. 1C-JP-00-15-035
completely fulfilled by the requested date, and the on-site portion of the audit began before
we received all requested documentation. We met with the Plan on March 23, 2015, to
discuss the lack of response to our requests. Additionally, we contacted the OPM Contracting
Office to notify them of our concerns.

Our on-site audit work began March 30, 2015, and additional requests for supporting
documentation and meeting requests were made to complete the audit program. Again in
some cases, support for requests was not provided in a timely manner. Also, meetings and
contact information for MLR subject matter experts was greatly restricted. For example, the
Plan could not provide sufficient MLR subject matter experts to answer related questions and
provide the information needed to confirm the MLR filing, even though many of these
meetings were requested prior to arriving on-site.

At the on-site close-out meeting on April 9, 2015, there were still 13 outstanding requests and
3 meetings that were not conducted while on-site, 1 of them being the claims processing
meeting. OPM’s Contracting Office participated in this meeting and scheduled another
separate meeting to discuss the outstanding requests and the Plan’s contract compliance.

On May 20, 2015, another information request was sent to the Plan, which contained six
requests, including contractual support for the capitation payments and related members. The
due date for these requests was May 26, 2015. However, as of the June 2, 2015 exit
conference, we still had not received the requested information. The Plan stated that we
would receive this information within a week, however, the contracts and membership related
to the capitation payments was never provided.

The Plan’s inability to make all materials, records, and subject matter experts available during
the course of our audit greatly inhibited our ability to complete our review. Consequently, the
findings outlined in this report are a direct result of the Plan’s inability or unwillingness to
address our requests and could have possibly been avoided had this access to information
been granted.

Recommendation 3

We recommend that the contracting officer require the Plan to comply with the terms of its
contract and make available all materials, records, and subject matter experts during future
OIG audits.




                                             11                           Report No. 1C-JP-00-15-035
IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

           , Auditor-in-Charge

        , Auditor

        , Lead Auditor

              , Lead Auditor


           , Senior Team Leader

              , Group Chief




                                  12   Report No. 1C-JP-00-15-035
                                      EXHIBIT A



                           MD-Individual Practice Association, Inc.
                               Summary of Questioned Costs

Contract Year 2013

Medical Loss Ratio Questioned Costs                                   $11,363,178

Total Questioned Costs                                                $11,363,178
                                                      EXHIBIT B

                                         MD-Individual Practice Association, Inc.
                                                    MLR Questioned Costs

FEHBP Medical Loss Ratio                                                                       Plan                Audited

OPM MLR Target                                                                                85.00%                85.00%

Medical Loss Ratio Numerator     Adjusted Incurred Claims                                   $349,858,798         $338,156,667
                                 Quality Health Improvement Expenses                         $4,260,507           $4,260,507
                                 MLR Numerator                                              $354,119,305         $342,417,174

Medical Loss Ratio Denominator   Premium Income                                             $435,090,847         $435,090,847
                                 Federal and State Taxes and Licensing or Regulatory Fees    $18,942,742          $18,857,229
                                 Less: RBA Finding(s)                                             $0                   $0
                                 MLR Denominator                                            $416,148,105         $416,233,618

                                 FEHBP MLR Calculation                                        85.09%                82.27%

Penalty Calculation              Penalty Due to OPM                                             $0                $11,363,178

                                 Questioned Cost (MLR Underpayment)                                               $11,363,178




                                                                                                           Report No. 1C-JP-00-15-035
                                       APPENDIX


              EMPLOYER & INDIVIDUAL




December 23, 2015




U.S. Office of Personnel Management Office of the Inspector General
1900 E Street, N.W. Room 64
Washington, DC 20415

RE: Correction to Comments to the Draft Audit Report on MD Individ ual Practice Association,
Inc. Plan Code JP, Report No. lC-JP-00-15-035

Dear            :

On November 13, 2015, the Plan provided a response to the Draft Audit Report for MD IPA
(1C-JP-00-15-035) ("Draft Report"). Subsequent to submitting the response, the Plan discovered
two significant errors made. The first is typographical the Plan inadvertently included an extra
digit on Page Two of the response (refer to Exhibit 1) and represented the 2013 Total Medical
Incurred Claims as $3,444,895,693 whereas the actual number should have been $344,895,693.
The total represented on this same page correctly reflected the total of $349,858,798 as
illustrated on Part 2 of the FEHBP-specific MLR submission form. The numerator used for
MLR calculation purposes includes the $349,858,798 plus the Quality Improvement expenses of
$4,260,507 to derive the total $354,119,305 which is illustrated on Part 5 of the submitted MLR
Form. The plan apologizes for this glaring error and any inconvenience or confusion this may
have caused.

The second and more critical error the Plan made in its response has to do with the MLR Penalty
Underpayment explanation relative to the capitation payments. The Plan provided an
explanation that the capitation payment was not included in the MLR figure and provided the
components that were (refer to Exhibit I). This explanation was actually comparing the claims
line level detail with the MLR aggregate total and was previously provided to the auditors. The
information provided was relevant to the audit but was responsive to a different issue than was
raised in the Draft Report.

Subsequent to providing the response to the Draft Report, the auditors asked a question regarding
a figure on the MLR submission form. ln providing the response to that question, the Plan
recognized the error it had made in responding to the Draft Report. The MLR submission form


                                                                   Report No. 1C-JP-00-15-035
December 23, 2015



   correctly includes the capitation payments made on behalf of FEHBP members and is included in
   the figure on line X of Part Y. The explanation of the capitation payment figure was provided to
   the auditors (please refer to Exhibit II).

   The Plan does want to reiterate that the capitation payments should remain as part of the total
   figure included in the MLR calculation as these payments reflect the cost associated with the
   FEHBP membership and are appropriately included in the total claims figure.

   Once you have had an opportunity to review the information contained in this response, please
   contact me if you have any questions or require additional information. Thank you for your
   ongoing cooperation.


   Respectfully,




   Director




                                                                        Report No. 1C-JP-00-15-035
 EXHIBIT I
(Exhibit I is the Plan’s original response to the Draft Report, dated November 13, 2015. Since the Plan provided it
again in their revised response, dated December 23, 2015, we’ve included it only once in the Appendix of this report.)




                                                                             Report No. 1C-JP-00-15-035
              EMPLOYER & INDIVIDUAL




November 13, 2015




U.S. Office of Personnel Management
Office of the Inspector General
1900 E Street, N.W. Room 64
Washington, DC 20415


RE: Comments to the Draft Audit Report on MD Individual Practice Association, Inc. Plan
Code JP, Report No. l C-JP-00-15-035

Dear            :

On September 10, 2015, the United States Office of Personnel Management, Office of the Inspector
General ("OPM/OIG") submitted to the Plan a "Draft Report" (1C-JP-00-15-
035) ("Draft Report"), detailing the results of its audit of the Federal Employees Health
Benefits Program ("FEHBP") operations of the MD Individual Practice Association , Inc. ("MD
IPA"), rate code JP, for contract year 2013. Upon submission, OPM/OIG requested that the
Plan provide comments to the Draft Report.

The Plan appreciates the opportunity to respond to this Draft Report and the willingness of
OPM to help resolve the outstanding issues in this audit. The Plan has used its best efforts to
obtain all relevant information to respond to the Draft Report's findings and recommendations.
This Response will address each issue presented in the Draft Report.

Medical Loss Ratio (MLR) Penalty Underpayment

In its Draft Report, the auditors stated "MD-Individual Practice Association, Inc. (Plan) calculated
a MLR of 85.09 percent and paid no penalty to OPM However, during our review of the Plan's
MLR submission, we found the following issues ... ...

Capitation
The Plan was unable to support $8,427, 735 of physician capitations and $2, 724,154 of other
capitations reported in the Plan's 2013 MLR filing. "




                                                                       Report No. 1C-JP-00-15-035
November 13, 2015

The Plan disagrees with the auditors removing the capitation amounts from the MLR calculation.
As was previously described by the Plan in a letter dated June 10, 2015, and prior to that
communication demonstrated through the MLR filing support including the Essbase queries
which extract data directly from our General Ledger, the MLR numerator is comprised of the
following data elements:

•   $344,895,693 - 2013 Total Medical Incurred Claims                            (A)
•   ($         ) - June 2014 YTD Incurred Claims                                 (B)
•   $         - June YTD Experience Change                                       (C)
•   $           - 2013 Dental Incurred Claims                                    (D)
•   $       - Allowable Fraud Reduction Expense                                   (E)


    $349,858,798                 (F) = (A) + (B) -(C) + (D) + (E)

The total figure of $349,858,798 is seen on the MLR Form Tab 'Pt 5 MLR Calculation' Line 1.2
Total adjusted claims incurred in 2013, paid through 6/30 of 2014. Then Line 1.3 Quality
improvement expenses of $4,260,507 are added to derive the numerator used in the MLR
calculation of $354,119,305.

The figures presented here (and in the original MLR Filing Form submitted) DELETED BY OIG –
NOT RELEVANT FOR FINAL REPORT demonstrate the numbers referenced by the OIG
Auditors are not part of the MLR calculation and therefore should not be removed from the calculation.

Other Claim Adjustments
The Auditors state "Additionally, the Plan was unable to support $550,241 of claim adjustments
related to State Stop Loss, Market Stability, and Medical Pools and Bonuses added to the 2013
MLR claim amounts. Since we could not verify these amounts or the reason why they were
included, we removed them from our 2013 audited calculation. "

The Plan disagrees with the Auditors interpretation that the numbers were in fact included in the
MLR calculation as the components outlined in this letter clearly demonstrate that the figure
"removed" by the Auditors was not included in the original MLR calculation and therefore
should not be removed from the MLR calculation.

DELETED BY OIG – NOT RELEVANT FOR FINAL REPORT


PCORI Fee
The Auditors state "The Plan was unable to support the $251,192 PCORI fee charged to the
FEHBP and we contend that the PCORJ fee is overstated. Based on the IRS guidance, we
applied the $2.00 per average number of lives to the FEHBP member months for calendar year
2013. The result of this calculation was $165,679 ....we used the $165, 679 in our 2013 audited
MLR calculation."

The Plan is unclear where the various numbers utilized in the Draft Audit report were obtained.



                                                                         Report No. 1C-JP-00-15-035
November 13, 2015

However, the Plan is in full compliance with the IRS guidance and has appropriately developed the
PCORI fee according to said guidance. Therefore, the Plan does not believe the Auditors
adjustment is warranted.

Conclusion
In conclusion, the Plan disagrees with the monetary findings contained in the Draft Audit Report
for the reasons provided in this correspondence in conjunction with the information provided
throughout the audit process.

Carrier Letter 2014-18 Compliance
The Auditors state "....the Plan's data submission contained information not applicable to the
MLR rating and did not match the values that the Plan used in its 2013 MLR calculation. We
recommend that the contracting officer require the Plan to comply with the annual MLR carrier
letter, which specifies required claims data submissions to the OIG and formatting
requirements. "

The Plan acknowledges that there was an issue with additional information not pertinent to the
MLR calculation that was inadvertently included in the detail submitted. It was not the intent of
the Plan to be out of compliance with Carrier Letter 2014-18 or any other instruction provided
by OPM. The Plan will comply with formatting requirements as outlined by OPM/OIG.

Availability of Records and Access to Subject Matter Experts
The Auditors state "Per Contract CS 1935, Section 5. 7(f), "the Contract shall make available at
its office at all reasonable times the records, materials, and other evidence ...for examination,
audit, or reproduction ....access to the Plan's subject matter experts having first-hand knowledge
of the components of the MLR calculation and related source documentation was restricted. We
recommend that the contracting office require the Plan to comply with the terms of its contract
and make available all materials, records, and subject matter experts having first-hand
knowledge of the MLR calculation submitted to OPM. ”

The Plan disputes the characterization that the access of the auditors was restricted. The subject
matter experts were made available as requests by the auditors were made. Due to the
complexity of the MLR process and the varying level of specificity required by the Auditors, the
Plan made every effort to ensure the appropriate subject matter experts were available to provide
requested information. In the event that it was determined that additional subject matter experts
were required to provide clarity relative to the Auditors inquiry, the Plan made sure to schedule
time with the appropriate parties to resolve any questions.

The Plan takes its contractual obligation very seriously and administers the FEHBP to be in
compliance with all Federal regulations, contractual provisions and OPM instructions.




                                                                       Report No. 1C-JP-00-15-035
Once you have had an opportunity to review the information contained in this response, please
contact me if you have any questions or require additional information. Thank you for your
ongoing cooperation.

Respectfully,




Director




                                                                     Report No. 1C-JP-00-15-035
EXHIBIT II

(Cover page only, as provided in Plan’s response)




                                                    Report No. 1C-JP-00-15-035
                                                 December Bal
50000 - Physician Claims Paid - RPS
50010 - Physician Cap Paid - External
50090 - Physician Claims Paid - NonRPS
50100 - Outpatient Claims Paid - RPS
50200 - Inpatient Claims Paid - RPS
50290 - Inpatient Claims Paid - NonRPS
50400 - MH/SA Claims Paid - RPS
 50490 - MH/SA Claims Paid - Non RPS

 50899 - Other Capitation Pd - External

 59999 - Miscellaneous Benefits Paid

   Paid Claims - Medical Change 

   in Payable - Medical Change 

   in Reserve - Medical Rate

   Credits

   State Stop Loss,MktStab & CBA

      Inc Claims Exel Prescriptions
      Prescription Drugs
      Pharmaceutical Rebates
        Claims Incurred
        Inc Med Inc Pools & Bonuses
              Total Incurred Claims
                                                 344,895,693.23
                Net Incurred Claims After Rein
                                                 344,895,693.23
                   Incurred Claims
                                                 344,895,693.23




                                                  Report No. 1C-JP-00-15-035
                                                                                                                         



                                       Report Fraud, Waste, and 

                                           Mismanagement 

                                                  Fraud, waste, and mismanagement in
                                               Government concerns everyone: Office of
                                                   the Inspector General staff, agency
                                                employees, and the general public. We
                                              actively solicit allegations of any inefficient
                                                    and wasteful practices, fraud, and
                                               mismanagement related to OPM programs
                                              and operations. You can report allegations
                                                          to us in several ways:


                        By Internet:               http://www.opm.gov/our-inspector-general/hotline-to-
                                                   report-fraud-waste-or-abuse


                         By Phone:                 Toll Free Number:                              (877) 499-7295
                                                   Washington Metro Area:                         (202) 606-2423


                           By Mail:                Office of the Inspector General
                                                   U.S. Office of Personnel Management
                                                   1900 E Street, NW
                                                   Room 6400
                                                   Washington, DC 20415-1100
                     
                                                                                                                         
                                                                                                                         




                                                             -- CAUTION --

This audit report has been distributed to Federal officials who are responsible for the administration of the audited program. This audit report may
contain proprietary data which is protected by Federal law (18 U.S.C. 1905). Therefore, while this audit report is available under the Freedom of
Information Act and made available to the public on the OIG webpage (http://www.opm.gov/our-inspector-general), caution needs to be exercised
before releasing the report to the general public as it may contain proprietary information that was redacted from the publicly distributed copy.

                                                                                                                   Report No. 1C-JP-00-15-035