oversight

Audit of the Federal Employees Health Benefits Program Operations at AvMed Health Plans

Published by the Office of Personnel Management, Office of Inspector General on 2015-02-27.

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 AVMED
                             HEALTH PLANS

                                          Report Number 1C-ML-00-14-026
                                                 February 27, 2015




                                                             -- 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 AvMed
                                         Health Plans
Report No. 1C-ML-00-14-026                                                                    February 27, 2015

Why Did We Conduct the Audit?           What Did We Find?

The primary objective of this           During our review of the Plan’s MLR submission, we found that
performance audit was to determine      the Plan inappropriately included a reinsurance claim totaling
                                        $182,000. The Plan’s organ transplant reinsurance program
whether AvMed Health Plans (Plan)
                                        provides dollar-one coverage with a zero deductible.
was in compliance with the provisions   Consequently, none of the transplant related claims are processed
of its contract and the laws and        by the Plan. The Plan pays a transplant reinsurance premium,
regulations governing the Federal       which like regular reinsurance, should not be included in the MLR
Employees Health Benefits Program       calculation.
(FEHBP). Specifically, we verified
if the Plan met the Medical Loss        The U.S. Department of Health and Human Services (HHS)
                                        regulations require that claims used in the numerator of the MLR
Ratio (MLR) requirements
                                        calculation should include only those claims directly paid by a
established by the U.S. Office of       health plan. HHS regulations define direct paid claims as claim
Personnel Management. Additional        payments before ceded reinsurance. In this case, the transplant
tests were performed to determine       claim was paid directly by the Plan’s reinsurer and should not have
whether the plan was in compliance      been included in the claims total for its MLR calculation. As a
with the provisions of the laws and     result, the FEHBP MLR subsidization penalty account was
regulations governing the FEHBP.        underpaid by the Plan in the amount of $182,000.


What Did We Audit?

Under contract CS 2876, the Office of
the Inspector General completed a
performance audit of the FEHBP
operations at the Plan. The audit
covered the Plan’s 2012 MLR
submission, and was conducted in
February 2014 at our offices in
Washington, D.C.; Cranberry
Township, Pennsylvania; and
Jacksonville, Florida.




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

ACA      Affordable Care Act
ASB      Administrative Sanctions Branch
AvMed    AvMed Health Plans
CFR      Code of Federal Regulations
CPT      Current Procedural Terminology
FEHBP    Federal Employees Health Benefit Program
FEHBAR   Federal Employees Health Benefits Acquisition Regulations
HHS      Department of Health and Human Services
MLR      Medical Loss Ratio
NPI      National Provider Identifier
OIG      Office of the Inspector General
OPM      U.S. Office of Personnel Management
Plan     AvMed Health Plans
SSSG     Similarly Sized Subscriber Group
TCR      Traditional Community Rating
U.S.C.   United Sates Code




                               ii
IV. MAJOR CONTRIBUTORS  TO THIS REPORT
          TABLE OF CONTENTS

                                                                                                                                    Page 

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


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


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


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


III.	   AUDIT FINDING AND RECOMMENDATION .....................................................9 


        1. MLR Penalty Underpayment ...................................................................................9 


IV.	    MAJOR CONTRIBUTORS TO THIS REPORT ..................................................10


        Exhibit A (Summary of Questioned Costs) .................................................................11 


        Exhibit B (Medical Loss Ratio Questioned Cost)........................................................12 


        Appendix (AvMed Health Plans’ December 16, 2014 response to the draft 

        report).......................................................................................................................... 13 


        REPORT FRAUD, WASTE, AND MISMANAGEMENT ....................................15 

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

Introduction
We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations
at AvMed Health Plans (Plan) located in Gainesville, Florida. The audit covered contract year
2012, and was conducted at our offices in Washington, D.C.; Cranberry Township,
Pennsylvania; and Jacksonville, Florida. The audit was conducted pursuant to the provisions of
Contract CS 2876; 5 U.S.C. Chapter 89; and 5 Code of Federal Regulations (CFR) Chapter 1,
Part 890. The audit was performed by the U.S. 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.

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 is 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 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-ML-00-14-026
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. This payment would
take place via wire transfer.

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 1,813 contracts and 3,941 members as of March 31, 2012, as shown in the
chart below.


                           FEHBP Contracts/Members
                                  March 31


                         4,000
                         3,000
                         2,000
                         1,000
                             0
                                                2012
                       Contracts                1,813
                       Members                  3,941


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

The Plan has participated in the FEHBP since 2003 and provides health benefits to FEHBP
members in South Florida. A prior audit of the Plan covered contract year 2011. In that audit,
we determined that the FEHBP premiums were developed in accordance with applicable laws,
regulations and OPM’s Rate Instructions to Community-Rated Carriers (rate instructions) for
contract year 2011.

The preliminary results of this audit were discussed with the Plan officials at an exit conference
and in subsequent correspondence.




                                                 2                          Report No. 1C-ML-00-14-026
 IV. MAJOR CONTRIBUTORS
 II. OBJECTIVES, SCOPE, AND TO THIS REPORT
                            METHODOLOGY

Objective
The primary objective of this performance audit was to determine whether AvMed (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. We also
verified whether the Plan offered a fair premium rate, based on its underwriting guidelines, rating
methodology and OPM rules and regulations. 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 2012. For this year, the FEHBP paid
approximately $22 million in premiums to the Plan.

OIG 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 tests of the Plan’s FEHBP premium rating system, claims data, quality health
expenses, and all other applicable costs considered in the calculation of its FEHBP premiums
and MLR. 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 were processed
      accurately; appropriate allocation methods for quality health expenses are being used;
      and, that any other costs associated in 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
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


                                                 3	                         Report No. 1C-ML-00-14-026
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.

Based on the survey work performed, we identified a total universe of 69,367 medical claim
lines totaling $13,541,293, and 41,554 pharmacy claim lines totaling $2,547,929, from
January 1, 2012 through December 31, 2012, and paid through March 31, 2013. The audit
universe attributes are the mandatory medical and pharmacy claim field requirements included in
FEHB Carrier Letter 2014-01, Audit Requirements for 2012 MLR Pilot Program Carriers.

All audit fieldwork was performed at our offices in Washington, D.C.; Cranberry Township,
Pennsylvania; and Jacksonville, Florida during February 2014.

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 whether 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 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 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.

To test whether the Plan accurately processed and paid FEHBP claims for contract year 2012 and
complied with its contract, we tested for potential claim errors within the full claims universes of
69,367 medical claim lines and 41,554 pharmacy claim lines; totaling $13,541,293 and
$2,547,929, respectively.

During our claim reviews, the samples were not statistically based. Consequently, the results
could not be projected to the universe, since it is unlikely that the results are representative of the
universe as a whole.

We performed the following procedures that resulted in potential errors which when tested, were
found to be processed correctly:

Claims Review

   Medical Claims

   	 We identified a potential coordination of benefits error universe by isolating the medical
      claims for members over age 65 and paid claim lines over $5,000. We obtained a
      judgmental sample of 10 claims for 9 members, totaling $228,907, for review in




                                                   4	                          Report No. 1C-ML-00-14-026
   determining if the claims were coordinated with Medicare properly and accurately
   processed.

	 We identified a potential member enrollment error universe by segregating the medical
   claims for all claim lines over $30,000, and removing any duplicate claim numbers. We
   judgmentally selected a sample of 19 claims including 195 claim lines for 17 members,
   totaling $1,619,385, to determine if the claims were accurately processed.

	 We completed a dependent eligibility member review on the medical claims. The
   universe contained all claims for members over age 26 and excluded all patients
   identified as a subscriber or spouse. This resulted in a universe of 340 claim lines
   totaling $61,771. We then removed all duplicate members in the universe and obtained a
   sample of 19 members. We sent the sample of 19 members to the Plan for review to
   determine if medical benefits were paid for ineligible dependent members during
   calendar year 2012.

	 We identified a potential bundling/unbundling error universe of 84 claim lines totaling
   $1,535. The universe contained all claim lines associated with the current procedural
   terminology (CPT) codes related to the primary panel code 80051, Electrolyte Panel. We
   sent the entire universe to the Plan for review to determine if the claims were accurately
   processed for contract year 2012.

Pharmacy Claims

	 We identified a potential member enrollment error universe of 76 claim lines for 12
   members totaling $265,491 for contract year 2012. The universe contained all claim
   lines over $2,000. We sent the entire universe of 76 claim lines to the Plan for review to
   determine if the claims were accurately processed.

	 We completed a dependent eligibility member review on the pharmacy claims. The
   universe contained all claims for members over age 26 and excluded all patients
   identified as a subscriber. This resulted in a universe of 10,253 claims totaling $601,453.
   We then removed all duplicate members and further reduced the sample universe by
   removing members over age 30 in the universe and obtained a sample of 24 members.
   We sent the sample of 24 members to the Plan for review to determine if pharmacy
   benefits were paid for ineligible dependent members during calendar year 2012.

	 We identified a potential high dollar drug script error universe of 162 claim lines totaling
   $410,907 for contract year 2012. The universe contained all claim lines over $1,500. We
   judgmentally selected a sample of 23 claims, totaling $60,878, to determine if the claims
   were accurately processed.

	 We identified a potential high quantity dispensed error universe of 294 claim lines
   totaling $25,153 for contract year 2012. The universe contained all claim lines with a
   drug unit measure as EA (for each). We then identified and reviewed the claims with



                                             5	                        Report No. 1C-ML-00-14-026
       high quantities that appeared unusual. We judgmentally selected a sample of 4 claim
       lines totaling $298, to determine if the claims were accurately processed.

   	 We also performed a quantity dispensed review to determine if there are any unusual
      trends within the claims data. During our review for unusual trends, we noticed that there
      were several unusual dispensed quantity scripts related to one member being filled within
      30 days for a controlled substance. As a result, we pulled all claims for the identified
      member and sent a sample of 6 oxycodone claims totaling $736 to the Plan to determine
      if the claims were properly adjudicated.

We also performed the following procedures that did not result in any potential errors to be
tested:

   	 We completed a duplicate claims review of the medical and pharmacy claim universes
      (using “best match” criteria) to identify claims that have all the same fields or duplicate
      claims where only the claim number is different. We chose which fields to match against
      and the order of precedence. We selected the following fields for medical claims: patient
      ID number, patient name (first and last), incurred date, covered charges, provider ID,
      procedure code, diagnosis code, type of service, and provider specialty. For the
      pharmacy claims, we selected all of the provided fields. We used the sort data function in
      our statistical software and selected the “keep only one entire duplicate if entirely
      duplicated” option. This would generate the possible duplicates as a separate run. We
      then reviewed the results for duplicate claims or any claims that have the same selected
      fields, but different claim numbers.

   	 We completed a duplicate claims review of the medical and pharmacy claim universes
      (using “near match” criteria) to identify claims for which some of the fields are the same
      or are duplicates but do not exactly match within the medical and pharmacy claim
      universe. We chose which fields to match against and the order of precedence. We
      selected the following fields for medical claims: patient ID number, patient name (first
      and last), incurred date, covered charges, provider ID, procedure code, and procedure
      modifier code. However, for the pharmacy claims, we selected the member number,
      subscriber number, and drug code, and the prescription fill dates had to be within five
      days of each other. We used the sort data function in our statistical software and selected
      the “keep only one entire duplicate if entirely duplicated” option. This would generate
      the possible duplicates as a separate run. We then reviewed the results for duplicate
      claims or any claims that have the same selected fields, but different claim numbers.

   	 We completed a debarred pharmacist and pharmacies review to determine if the Plan paid
      any pharmacy claims to debarred pharmacists or pharmacies. We requested a list of
      debarred pharmacists and pharmacies in the Plan’s service area from the OIG
      Administrative Sanctions Branch (ASB). We ran a query on the claims data to determine
      if any debarred pharmacists or pharmacies were included in the pharmacy data.

   	 We completed a review of debarred providers to determine if the Plan paid any medical
      claims to debarred providers. The review compared the list of debarred providers to the


                                                 6	                        Report No. 1C-ML-00-14-026
       medical claims data. We requested a list of debarred providers in the Plan’s service area
       from the ASB. We identified the debarred providers and compared each one to the
       medical claims data. The debarred provider list included the provider names and the
       provider National Provider Identifier (NPI) numbers, when available. We used the NPI
       number to query against the medical claims, but used the provider name if the NPI
       number was unavailable.

   	 We completed a zero quantity review to determine if any pharmacy claims were paid that
      had a zero quantity amount. We attempted to identify all pharmacy claims that had zero
      in the quantity field and a dollar amount in the paid field.

   	 We completed an ineligible group number review on the medical and pharmacy universes
      to determine if any claims were paid for non-FEHBP members or for members enrolled
      in a different employer group. We requested a list of group numbers and group names
      for both the medical and pharmacy claims data and sorted this data by the group number
      to identify any exceptions. We used the statistical summary function within our
      statistical software to determine the universe of group numbers. We compared the
      universe to the list of group numbers provided by the Plan to determine if there were any
      results.

   	 We completed a non-covered benefits review on the medical claims universe. We
      reviewed the 2012 FEHBP benefit brochure to determine non-covered benefits. We
      tested the medical claims data to determine if any of the following non-covered benefits
      were paid in error: elective abortions, sex transformations, reversal of sterilization, radial
      keratotomy, and eye exercises.

   	 We completed a deceased member review on the medical and pharmacy universe. We
      selected a sample from the older population in the claims data. The claims were sorted
      by member age (over age 85). Claims were extracted from data for the oldest members.
      We removed any duplicate patient IDs. We obtained a sample of 11 members. The
      sample was sent to the OIG Office of Investigations to determine if a death record existed
      for the member.

All samples selected during our audit were not statistically based. Consequently, the results
could not be projected to the universe, since it is unlikely that the results are representative of the
universe, as a whole.

We also examined the rate build-up of the Plan’s Federal rate submissions 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.




                                                   7	                          Report No. 1C-ML-00-14-026
To gain an understanding of the internal controls in the plan’s rating system, we reviewed the
Plan’s rating system policies and procedures and interviewed Plan officials regarding the
controls in place to ensure that the appropriate rates were charged. Other auditing procedures
were performed as necessary to meet our audit objectives.

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.




                                                8                         Report No. 1C-ML-00-14-026
   IV. MAJOR
   III.        CONTRIBUTORS
        AUDIT FINDING       TO THIS REPORT
                      AND RECOMMENDATION
1. MLR Penalty Underpayment                                                             $182,000

     For contract year 2012, AvMed (the Plan) participated in OPM’s MLR pilot program. Pilot
     program carriers were required to meet the OPM-established MLR threshold of 89 percent.
     Therefore, 89 cents of every health care premium dollar must have been spent on health care
     expenses. If the MLR was less than 89 percent, the carrier owed a subsidization penalty
     equal to the difference between the threshold and the carrier’s actual MLR.

     AvMed calculated an MLR of 76.34 percent and paid a penalty of $2,762,556 to OPM before
     the deadline of August 31, 2013. However, during our review of the Plan’s MLR
     submission, we found that the Plan inappropriately included a reinsurance claim totaling
     $182,000. The Plan’s organ transplant reinsurance program provides dollar-one coverage
     with a zero deductible. Consequently, none of the transplant related claims are processed and
     paid by the Plan. The Plan pays a transplant reinsurance premium, which like regular
     reinsurance should not be included in the MLR calculation. Based upon guidance provided
     by a third-party consultant, the Plan inappropriately included estimated transplant claims
     incurred in its MLR calculation.

     HHS regulations require that claims used in the numerator of the MLR calculation should
     include only those claims directly paid by a health plan. HHS 45 CFR Part 158 Section
     158.103, defines direct paid claims as claim payments before ceded reinsurance. Therefore,
     reinsurance recoveries must also be excluded from the claims total for MLR purposes.
     Furthermore, the Plan’s premiums in the denominator include premiums paid for reinsurance.
     In this case, the transplant claim was paid directly by the Plan’s reinsurer and should not
     have been included in the claims total for its MLR calculation. As a result, we removed the
     $182,000 transplant reinsurance claim from the numerator of our audited MLR calculation.
     We calculated our audited MLR at 75.51 percent and determined that the Plan underpaid its
     subsidization penalty due to OPM by $182,000 (see Exhibit B).

     Plan’s Response (see Appendix):

     The Plan agrees with our finding.

     Recommendation 1

     We recommend that the contracting officer require the Plan to pay an additional MLR
     subsidization penalty of $182,000 for contract year 2012.




                                             9                             Report No. 1C-ML-00-14-026
  IV. MAJOR CONTRIBUTORS TO THIS REPORT

COMMUNITY-RATED AUDITS GROUP

         , Auditor-In-Charge

          , Auditor


         , Senior Team Leader

            , Senior Team Leader

          , Group Chief




                                   10   Report No. 1C-ML-00-14-026
                                  EXHIBIT A


                             AvMed Health Plans
                          Summary of Questioned Costs

Contract Year 2012


Medical Loss Ratio Questioned Costs                             $182,000

Total Questioned Costs                                          $182,000




                                       11               Report No. 1C-ML-00-14-026
                                            EXHIBIT B

                                        AvMed Health Plans
                                       MLR Questioned Costs

                                                                 Per Audit             Per Plan
2012 FEHBP MLR Target                                               89%                  89%


Claims Expense
Total Adjusted Incurred Claims                                   $16,481,322         $16,663,322


Premiums
Earned Premium                                                   $21,897,080         $21,897,080
Less: Federal and State Taxes and Licensing or Regulatory Fees    $70,250              $70,250
Adjusted Premiums                                                $21,826,830         $21,826,830
Less: Defective Pricing Finding (Due OPM)                            $0                  $0
Total Adjusted Premiums (Net of Defective Pricing)               $21,826,830         $21,826,830


Total Adjusted Incurred Claims (MLR Numerator)                   $16,481,322         $16,663,322
Total Adjusted Premiums less Defective Pricing (MLR
                                                                 $21,826,830         $21,826,830
Denominator)
FEHB MLR Calculation (rounded)                                     75.51%              76.34%
MLR Penalty Calculation (see below)                              $2,944,556           $2,762,556
MLR Penalty Paid                                                 $2,762,556           $2,762,556
MLR Underpayment Finding (Due OPM)                                $182,000               $0



                                      MLR Penalty Calculation

                                                                 Per Audit             Per Plan
2012 FEHBP MLR Target                                               89%                  89%
Less: FEHB MLR Calculation (rounded)                               75.51%              76.34%
MLR Difference:                                                    13.49%              12.66%
Multiplied By: Total Adjusted Premium (Net of Defective
                                                                 $21,826,830         $21,826,830
Pricing)

MLR Penalty Calculation                                          $2,944,556           $2,762,556




                                                          12                   Report No. 1C-ML-00-14-026
                                  APPENDIX




December 10, 2014

Deleted by OIG-Not Relevant to Final Reportp
U.S. Office of Personnel Management
Office of the Inspector General
800 Cranberry Woods Drive, Suite 270
Cranberry Township, Pennsylvania 16066


Deleted by OIG-Not Relevant to Final ReportD


Enclosed are AvMed Health Plans’ responses to the results contained in Report No. 1C-
ML-00-14-26, dated September 18, 2014, covering the Deleted by OIG-Not Relevant to
Final Report p and Medical Loss Ratio (MLR) submission. As required, we have
enclosed both hardcopy and CD format of the information contained below.

Deleted by OIG-Not Relevant to Final Report

Medical Loss Ratio Review

1. MLR Penalty Underpayment

   The Plan inappropriately included a claim totaling $182,000 related to reinsurance
   expense. In this case, the transplant claim was paid directly by the Plan’s reinsurer
   and should not have been included in the claims total for the MLR calculation.

   Plan Response


   AvMed agrees that the $182,000 included in the 2012 FEHBP MLR incurred claims
   for the FEHBP transplant member should be removed from the calculation.
   Although the cost of



                                            13                      Report No. 1C-ML-00-14-026
the transplant is a covered benefit, we were given incorrect information from a
statutory consultant regarding the admissibility of transplant costs incurred under
this contract, in

MLR calculations. All reinsurance is excluded from MLR calculations. AvMed
included no costs, nor recoveries, related to transplant reinsurance in the 2013
FEHB calculation. Effective 2014, the transplant benefit became a capitated service
provided through a third party intermediary, and is no longer a reinsurance
contract.

Please consider AvMed’s responses and all relevant material provided in formulation
of the final report. If you have any questions or additional information is required,
please contact Deleted by OIG-Not Relevant to Final Report.



Sincerely,


Deleted by OIG-Not Relevant to Final Report
Vice President, Finance
AvMed Health Plans




                                        14                      Report No. 1C-ML-00-14-026
                                                                             



               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
  
                                                                             
                                                                             




                                          15                          Report No. 1C-ML-00-14-026