oversight

Audit of the Federal Employees Health Benefits Program Operations of Blue Care Network of Michigan, Inc

Published by the Office of Personnel Management, Office of Inspector General on 2010-02-19.

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 Blue Care Network of

                         Michigan, Inc.



                                             Report No. IC-LX-OO-IO-007


                                             Date:                  February 19, 2010




                                                           -- CAUTION --
ThiS ;ludil ,'epnrl h:ls been i1isl,-ilJuled It, Federal om(i~ls wh(, arc nSJlllusihlcr.,,- tlie ~dnlinislr;llio" of lhe audiled progj'<lul. This
audit rqlol" 'Ilay contain propril't<ll"y d<lla "hid, is pWlecled b~' ""ederallaw (18 ll,S.C 19(5), TIH;:n:J(H"c. while litis audit rqll,n is
a~ailahlc under the Freedom of luronnalion Act 'Ind made aV;lilable to the public on lhe 01(; webrlllge. e;lulian needs 10 he ewrdsed
bet"(.. ,c releasing Ihe report 10 [he genel"al public as il rnay conla;n pJ"OI)rietary information lhal was redacted from Ihe puhlich'
distrihnlcd 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

                                      Blue Care Network of Michigan, Inc.

                                     Contract Number 2011 - Plan Code LX

                                             Southfield, Michigan




                      Report No. IC-LX-00-IO-007                      Da~:   February 19. 2010




                                                                      Michael R. Esser
                                                                      Assistant Inspector General
                                                                        for Audits




        www.opm.gov                                                                         www.usajobs.gov
                           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

                                    Blue Care Network of Michigan, Inc.

                                   Contract Number 2011 - Plan Code LX

                                           Southfield, Michigan




                    Report No. lC-LX-OO-lO-007                       Da~:   February 19, 2010

       The Office of the Inspector General performed an audit of the Federal Employees Health Benefits
       Program (FEHBP) operations at Blue Care Network of Michigan, Inc. (Plan). The audit covered
       contract years 2006 through 2009 and was conducted at the Plan's office in Southfield, Michigan.
       The audit showed that the Plan's rating of the FEHBP was developed in accordance with
       applicable laws, regulations, and the Office of Personnel Management's rating instructions for
       the years audited.




         www.opm.goY                                                                        www.usiljobs.goY
CONTENTS

                     I. INTRODUCTION AND BACKGROUND


Introduction

We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at Blue Care Network of Michigan, Inc. (Plan). The audit covered contract years 2006 through
2009 and was conducted at the Plan's office in Southfield, Michigan. The audit was conducted
pursuant to the provisions of Contract CS 2011; 5 V.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, arumitants, 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 caITiers who
provide service benefits, indemnity benefits, or comprehensive medical services.

Conununity-rated carriers participating in the FEHBP are subject to various federal, state and
local laws, regulations, and ordinances. While most catTiers 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 rate,                     FEHBP Contracts/Members
which is defined as the best rate offered to                         March 31

either of the two groups closest in size to         20,000
the FEHBP. In contracting with                      18,000
community-rated carriers, aPM relies on             16,000
                                                    14,000
cani.er compliance with appropriate laws
                                                    12,000
and reg:ulations and, consequently, does not
                                                    10,000
negotiate base rates. aPM negotiations               8,000
relate primarily to the level of coverage and         6,000
other unique features of the FEHBP.                  4,000
                                                      2,000
The chaI1 to the right shows the number of                o
                                                              2006     2007     2008    2009
FEHBP contracts and members reported by                       4,279    5,224    7,948   8,257
                                                • Contracts
the Plan as of March 31 for each contract
                                                o Members     7,730   12,118   18,717   19.415
year audited.
The Plan has participated in the FEHBP since 1984 and provides comprehensive medical
services to the FEHBP as an individual practice plan. Primary health care services are provided
to most of Michigan. The last audit conducted by our office covered contract years 2002 through
2005. 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. Since the audit showed that the Plan's rating of the FEHBP
was in accordance with applicable laws, regulations, and instructions, we did not issue a draft
report.




                                                2

                    II. OBJECTIVES, SCOPE, AND METHODOLOGY


Objectives

The primary objectives ofthe audit were to verify that the Plan offered market price rates to the
FEHBP and to veritY 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.



We conducted this perfOlmance audit in accordance                            FEHBP Premiums Paid to Plan
with generally accepted government auditing
standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate                        $40

evidence to provide a reasonable basis for our                             $35
                                                                           $30
findings and conclusions based on our audit
                                                                           $25
objectives. We believe that the evidence obtained
                                                                           $20
provides a reasonable basis for our findings and
                                                                           $15
conclusions based on our audit objectives.
                                                                           $10
                                                                            $5
This performance audit covered contract years 2006
                                                                            $0
through 2009. For 2006 through 2008, the FEHBP
paid approximately $108.8 million in premiums to                     _Revenue
the Plan. I The premiums paid for each contract year
audited m'e shown on the chart to the right.

OlG audits of community-rated caniers 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 ofthe Plan's internal control stmcture, but we did not use this
infoffilation to detennine 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 intemal 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 otfered to SSSGs); and

           •	 the loadings to the FEHBP rates were reasonable and equitable.

1   The Subscription Income Report for 2009 was not available al the time this report was completed.
                                                           "J
In conducting the audit, we relied to varying degrees on computer-generated billing, ernollment,
and claims data provided by the Plan. We did not verify the reliability of the data generated by
the various infOlmation 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 perfonned at the Plan's office in Southfield, Michigan during November
2009. Additional audit work was completed at our offices in Washington, D. C. and
Jacksonville, Florida.

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 lmderstanding 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.




                                                 4

                             III. RESULTS OF THE AUDIT


OUf audit showed that the Plan's rating of the FEHBP was in accordance with the applicable
laws, regulations, and OPM's rating instructions to carriers for contract years 2006 through 2009.
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

                  Lead Auditor

                       Auditor




                    Chief

                 Senior Tearn Leader




                                       6