CONTENTS
Page
EXECUTIVE SUMMARY................................................................................................... i
I. INTRODUCTION AND BACKGROUND .......................................................................... 1
II. OBJECTIVES, SCOPE, AND METHODOLOGY ............................................................... 3
III. AUDIT FINDINGS AND RECOMMENDATIONS ............................................................ 5
Premium Rate Review .......................................................................................................... 5
1. Defective Pricing ............................................................................................................... 5
2. Lost Investment Income ..................................................................................................... 6
IV. MAJOR CONTRIBUTORS TO THIS REPORT ................................................................. 7
Exhibit A (Summary of Questioned Costs)
Exhibit B (Defective Pricing Questioned Costs)
Exhibit C (Lost Investment Income)
Appendix (Fallon Community Health Plan’s February 10, 2012 response to the draft report)
The Plan has participated in the FEHBP since 1982 and provides health benefits to FEHBP
members in Central, Eastern, and Western Massachusetts. The last audit of the Plan conducted by
our office was a rate reconciliation audit for contract year 2010. We agreed with the Plan’s 2010
proposed reconciled rates.
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 included, as
appropriate, in the Appendix.
2
In conducting the audit, we relied to varying degrees on computer-generated billings and
enrollment 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.
The audit fieldwork was performed at the Plan’s office in Worcester, Massachusetts, during
August 2011. Additional audit work was completed at our offices in Cranberry Township,
Pennsylvania; Jacksonville, Florida; and Washington, D.C.
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 (FEHBAR), 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
2. Lost Investment Income $11,880
In accordance with the FEHBP regulations and the contract between OPM and the Plan, the
FEHBP is entitled to recover lost investment income on the defective pricing finding in
contract year 2009. We determined that the FEHBP is due $11,880 for lost investment
income, calculated through February 29, 2012 (see Exhibit C). In addition, the FEHBP is
entitled to lost investment income for the period beginning March 1, 2012, until all defective
pricing finding amounts have been returned to the FEHBP.
FEHBAR 1652.215-70 provides that if any rate established in connection with the FEHBP
contract was increased because the carrier furnished cost or pricing data that were not
complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall
be reduced by the amount of the overcharge caused by the defective data. In addition, when
the rates are reduced due to defective pricing, the regulation states that the government is
entitled to a refund and simple interest on the amount of the overcharge from the date the
overcharge was paid to the carrier until the overcharge is liquidated.
Our calculation of lost investment income is based on the United States Department of the
Treasury's semiannual cost of capital rates.
Recommendation 2
We recommend that the contracting officer require the Plan to return $11,880 to the FEHBP
for lost investment income for the period January 1, 2009, through February 29, 2012. In
addition, we recommend that the contracting officer recover lost investment income on
amounts due for the period beginning March 1, 2012, until all defective pricing amounts have
been returned to the FEHBP.
Plan’s Comments (see Appendix):
The Plan agrees with our finding.
6
IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group
, Auditor-in-Charge
, Auditor
, Lead Auditor
Chief
s, Senior Team Leader
7
Exhibit A
Fallon Community Health Plan
Summary of Questioned Costs
Defective Pricing Questioned Costs:
Contract Year 2009 $136,411
Total Defective Pricing Questioned Costs $136,411
Lost Investment Income $11,880
Total Questioned Cost $148,291
Exhibit B
FALLON COMMUNITY HEALTH PLAN
Defective Pricing Questioned Costs
2009 Contract Year - Basic Option
Single Family
Plan's Reconcilied Rates
Audited Line 5 Rates
Overcharge
March 31, 2009 Enrollment
x 26 pay period
Amount Due FEHBP in 2009 $98,976
2009 Contract Year - Standard Option
Single Family
Plan's Reconcilied Rates
Audited Line 5 Rates
Overcharge
March 31, 2009 Enrollment
x 26 pay period
Amount Due FEHBP in 2009 $37,435
Total Defective Pricing Questioned Cost $136,411
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 2012-03-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)