oversight

Audit of the Federal Employees Health Benefits Program Operations at MVP Health Care - Mid-Hudson Region

Published by the Office of Personnel Management, Office of Inspector General on 2013-04-09.

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

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




                                   Final Audit Report
Subject:

         Audit of the Federal Employees Health Benefits
          Program Operations at MVP Health Care –
                       Mid-Hudson Region


                                          Report No. 1C-MX-00-12-064

                                          Date: April 9, 2013




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



                                Federal Employees Health Benefits Program
                             Community-Rated Health Maintenance Organization
                                 MVP Health Care – Mid-Hudson Region
                                Contract Number CS 2362 - Plan Code MX
                                         Schenectady, New York



              Report No. 1C-MX-00-12-064                                                    04/09/13
                                                                                     Date: _________________




                                                                                      Michael R. Esser
                                                                                      Assistant Inspector General
                                                                                        for Audits



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




                      Federal Employees Health Benefits Program
                   Community-Rated Health Maintenance Organization
                       MVP Health Care – Mid-Hudson Region
                      Contract Number CS 2362 - Plan Code MX
                               Schenectady, New York


         Report No. 1C-MX-00-12-064                        Date: 04/09/13

The Office of the Inspector General performed an audit of the Federal Employees Health
Benefits Program (FEHBP) operations at MVP Health Care – Mid-Hudson Region (Plan). The
audit covered contract years 2008 through 2012. The audit was conducted at the Plan’s office in
Schenectady, New York.

This report questions $272,646 for inappropriate health benefit charges to the FEHBP in contract
year 2008. The questioned amount includes $235,675 for defective pricing and $36,971 for lost
investment income. We found that the FEHBP rates were developed in accordance with
applicable laws, regulations, and the Office of Personnel Management’s rules and regulations for
contract years 2009 and 2010.

For contract year 2008, the Plan did not apply the correct similarly sized subscriber group
(SSSG) discount to the FEHBP rates. Also, in contract years 2011 and 2012, the Plan applied a
Health Dollars benefit rider to the FEHBP rates. The benefit is used by members to purchase
health and wellness programs to promote healthy living. Because this is not an FEHBP
contracted benefit and cannot be charged to the FEHBP, we removed the loading from our 2011
and 2012 audited FEHBP rates. We found the removal of this loading had no material cost
impact to the FEHBP rates.



                                               i
Consistent with the FEHBP regulations and contract, the FEHBP is due $36,971 for lost
investment income, calculated through March 31, 2013, on the defective pricing findings. In
addition, the contracting officer should recover lost investment income on amounts due for the
period beginning April 1, 2013, until all defective pricing amounts have been returned to the
FEHBP.




                                               ii
                                                         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. Inappropriate Benefit Loadings .................................................................................. 6

     3. Lost Investment Income............................................................................................... 6

IV. MAJOR CONTRIBUTORS TO THIS REPORT ........................................................... 8

     Exhibit A (Summary of Questioned Costs)

     Exhibit B (Defective Pricing Questioned Costs)

      Exhibit C (Lost Investment Income)

      Appendix ( MVP Health Care – Mid-Hudson Region’s March 12, 2013, response to the
      draft report)
                       1. INTRODUCTION AND BACKGROUND


Introduction

We comp leted an audi t of the Federal Employees Health Benefits Program (FE HB P) operations
at :MVP He alth Ca re - Mid-Hudson Re gion (Plan) . TIle audit cove red co ntract yea rs 2008
through 20 12, and was co nducted at the Plan ' s office in Sche nec tady, New York. Th e audit was
conducted pursuant to the provisions of Contrac t CS 2362 ; 5 u.s.c. Cha pter 89 ; and 5 Co de of
Federal Regulations (CFR) Chapter 1, Part 890 . The audit was performed by the Office of
Personnel Ma nagement 's (OPM) Office of the Inspector Gene ral (DIG) , as established by the
Inspector Ge neral Ac t of 1978, as amended.

Background

The FE HEP wa s established by the Federal Employees Health Ben efi ts Ac t (Public Law 86 ­
382), enac ted a ll September 28 , 1959. The FEHBP wa s crea ted to provide health insuran ce
benefits for federal employees, annuitants, and dependents . The FEHBP is administered by
OPM ' s Healthcare and Insur an ce Office . Th e provisions of the Federal Employees He alth
Benefits Ac t are implemented by O PM through regulations co dified in Chapter I , Part 890 of
Title 5, CFR . Health insurance co verage is provided thr ough co ntracts with health insurance
carriers who provide servi ce benefits, indemnity benefit s, or comprehensive medical serv ices .

Community-rated ca rrie rs parti c ipating in the FEHBP are subject to various federal, state and
local laws, regul ations, and ordina nce s. While most carriers are subject to state j uri sdic tion,
many are further subj ect to the Health Ma intena nce Orga niza tion Ac t of 1973 (Public Law 93­
222), as amended (i.e., many co mmunity-rated carriers are federa lly qualified ). In addition,
parti cipation in the FE HB P subjects the carriers to the Fede ral Employees Health Benefits Ac t
and implementing regula tions promulgated by OPM.

The FE HB P should pay a market pri ce rate,                        FEHBP Contra cts/Members
                                                                           March 31
which is de fine d as the best rate offered to
eithe r of the two groups closest in size to                7,000
the FE HB P. In co ntracting with
                                                            6,000
community-rated carriers, OPM re lies on
carrie r co mpliance with appro pria te laws                5,000
and regulations and, consequently, does not                 4,000
negoti ate base rat es. OPM negotiati ons                   3,000           I­          -
re late primaril y to the level of cove rage and
other unique features of the FEHBP.                         2,000                                   -        I­
                                                            1,000
The cha rt to the right shows the number of                     0
                                                                     2008        2009       20 10   201 1     2012
FEHBP co ntrac ts and members reported by               . Contracts 2,155    2,091          1,920   1,450     1,395
the Plan as of Ma rch 3 1 for each co ntract            c Memoors 4,405      6,222          3,609   2,9 40    2,8 49
yea r audited.

                                                   I

The Plan has participated in the FEHBP since 1988 and provides health benefits to FEHBP
members in the Mid-Hudson area of New York, including Columbia, Duchess, Greene, Orange,
Putnam, Rockland, Sullivan, and Ulster counties. The last full scope audit of the Plan conducted
by our office was for contract years 2003 and 2005 through 2007. The audit found the Plan was
not properly crediting the FEHBP for premium tax, graduate medical expense, and bad
debt/charity loadings that were included in the community rates. All audit issues were resolved.

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
                II. OBJECTIVES, SCOPE, AND METHODOLOGY
Objectives

The primary objectives of the audit were to verify that the Plan offered market price rates to the
FEHBP and to verify that the loadings to the FEHBP rates were reasonable and equitable.
Additional tests were performed to determine whether the Plan was in compliance with the
provisions of the laws and regulations governing the FEHBP.

Scope
                                                                     FEHBP Premiums Paid to Plan

We conducted this performance audit in
accordance with generally accepted government                       $30

auditing standards. Those standards require that                    $25




                                                      Millions
we plan and perform the audit to obtain                             $20
sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions                   $15

based on our audit objectives. We believe that                      $10
the evidence obtained provides a reasonable                          $5
basis for our findings and conclusions based on                            2008    2009    2010    2011
                                                                 Revenue   $19.4   $20.6   $20.0   $19.7
our audit objectives.

This performance audit covered contract years
2008 through 2012. For contract years 2008 through 2011, the FEHBP paid approximately
$79.7 million in premiums to the Plan, as shown on the chart above. The 2012 subscription
income was not available at the time of this report.

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 such tests of the Plan’s rating system and such other auditing procedures
considered necessary under the circumstances. Our review of internal controls was limited to the
procedures the Plan has in place to ensure that:

        • The appropriate similarly sized subscriber groups (SSSG) were selected;

        • the rates charged to the FEHBP were the market price rates (i.e., equivalent to the best
          rate offered to the SSSGs); and

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


                                                 3
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
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 Schenectady, New York during August
2012. Additional audit work was completed at our offices in Jacksonville, Florida; Washington,
D.C.; and Cranberry Township, Pennsylvania.

Methodology

We examined the Plan’s federal rate submissions and related documents as a basis for validating
the market price rates. In addition, we examined the rate development documentation and
billings to other groups, such as the SSSGs, to determine if the market price was actually charged
to the FEHBP. Finally, we used the contract, the Federal Employees Health Benefits Acquisition
Regulations, and OPM’s Rate Instructions to Community-Rated Carriers to determine the
propriety of the FEHBP premiums and the reasonableness and acceptability of the Plan’s rating
system.

To gain an understanding of the internal controls in the Plan’s rating system, we reviewed the
Plan’s rating system policies and procedures, interviewed appropriate Plan officials, and
performed other auditing procedures necessary to meet our audit objectives.




                                                 4
               III. AUDIT FINDINGS AND                 RECOM~IE NDTIONS

Premium Rate Reyiew

1. Defectin Pricing                                                                        $235.675

  TIle Certifica te of Acc ura te Pri cing the Plan signed for contract yea r 2008 wa s defective. In
  accorda nce with federa l regul ations, the FEHBP is therefore due a rate re duction for thi s year.
  Applica tion of the defective pr icing remedy shows tha t the FEHBP is due a premium
  adj ustment totaling $235 ,675 (see Exhibit A). For co ntract years 2011 and 20 12, we
  determined that the Plan applied an inap pro priate bene fit loading to the FE HBP rates, which
  had no material co st im pact to the FEHBP. We found that the FEHBP rates we re developed
  in accordance with applicable laws, regulations, and OPM 's rul es and regulations in contract
  yea rs 2009 and 20 10.

  Carriers proposing rates to a PM are requi red to submit a Ce rt ificate of Acc ura te Pricing
  certifying that the proposed subscription rates, subject to adj ustment s recognized by OPM , are
  market price rate s. OPM regul ations refer to a market price rate in conjunction with the rates
  offered to an SSSG. SSSGs are the Plan' s two employer groups clo sest in subscriber size to
  the FEHBP. If it is found that the FEHBP was charged higher than the market price rate (i.e.,
  the be st rate offered to an SSSG), a condition of defective pri cing exists, requ iring a
  down ward adj ustme nt of the FEHBP premiums to the equivalent mark et price rate.



  We agree with the Plan' s selection 0
  contract year 2008 . Our anal ysis shows t iat
  the Plan did not apply a discoun t to the FEHBP. However ,                         received a
  •    percent discount . Since the FEHBP is ent itled to a discount equi valent to the largest
  discoun t give n to an SSSG, we appl ied the . percent discoun t to the FEHBP ' s rates.

  We calculated our aud ited FEHBP rates by applying the .         percent _
  discoun t. A comparison of our aud ited line 5 rates to the-pr:'n ' s recOl~ow
  the FEHBP wa s overcharged $235 ,675 in contract year 2008 (see Exhibit B).

  Plan 's Com m ents (s.ee Appendix):

  TIle Plan has no issues or concerns with these findings.

  Recommendation 1

  We recommend that the contracting officer re quire the Plan to returu $235 ,675 to the FEHBP
  for defective pri cing in contract year 2008 .


                                                  5
2. Inappropriate Benefit Loadings

  In contract years 2011 and 2012, the Plan included the cost of rider “MED 531L” in the
  FEHBP premium rates. The rider represents a $50 Health Dollar benefit offered to
  subscribers to spend on health, wellness and fitness programs. We reviewed the 2011 and
  2012 FEHBP brochures and determined that the Health Dollar benefit was listed in the Non-
  FEHBP benefits available to Plan members section of the brochures. As stated in the
  brochures, “the benefits in this section are not part of the FEHBP contract or premium.” The
  inclusion of this rider inappropriately increased the FEHBP premium rates. We removed the
  loading from our audited FEHBP rate development. However, the removal did not have a
  material cost impact to the FEHBP rates.

  Plan’s Comments (see Appendix):

  The Plan has no issues or concerns with these findings, and stated they would exclude the
  Health Dollar loading from the 2013 and future FEHBP rate developments.

  Recommendation 2

  We recommend that the contracting officer require the Plan to exclude the Health Dollar
  loading in the FEHBP rate development going forward.

3. Lost Investment Income                                                                 $36,971

  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 2008. We determined that the FEHBP is due $36,971 for lost investment
  income, calculated through March 31, 2013 (see Exhibit C). In addition, the FEHBP is
  entitled to lost investment income for the period beginning April 1, 2013, until all defective
  pricing finding amounts have been returned to the FEHBP.

  Federal Employees Health Benefits Acquisition Regulation 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 was 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.



                                                6
Plan’s Comments (see Appendix):

The Plan has no issues or concerns with the lost investment income finding.

Recommendation 3

We recommend that the contracting officer require the Plan to return $36,971 to the FEHBP
for lost investment income, calculated through March 31, 2013. We also recommend that the
contracting officer recover lost investment income on amounts due for the period beginning
April 1, 2013, until all defective pricing finding amounts have been returned to the FEHBP.




                                            7
              IV. MAJOR CONTRIBUTORS TO THIS REPORT
Community-Rated Audits Group

                 Auditor-in-Charge

                 , Auditor

                  , Auditor


                   Chief

                 , Senior Team Leader




                                        8
                                                                     Exhibit A


                         MVP Health Care - Mid-Hudson Region
                            Summary of Questioned Costs



Defective Pricing Questioned Costs:


      Contract Year 2008                                  $235,675


              Total Defective Pricing Questioned Costs:              $235,675


      Lost Investment Income:                                         $36,971


                  Total Questioned Costs:                            $272,646
                                                                                  Exhibit B

                      MVP Health Care - Mid-Hudson Region
                       Defective Pricing Questioned Costs

2008

High Option                                      Self        Family
 FEHBP Line 5 - Reconciled Rate
 FEHBP Line 5 - Audited Rate

Biweekly Overcharge

 To Annualize Overcharge:
    March 31, 2008 enrollment
    Pay Periods                                         26      26

Subtotal                                                              $203,938

Standard Option                                  Self        Family
 FEHBP Line 5 - Reconciled Rate
 FEHBP Line 5 - Audited Rate

Biweekly Overcharge

 To Annualize Overcharge:
    March 31, 2008 enrollment
    Pay Periods                                         26      26

Subtotal                                                               $31,737

 Total 2008 Questioned Costs                                                     $235,675

           Total Defective Pricing Questioned Costs:                             $235,675
                                                                                                                              Exhibit C

                                                    MVP Health Care - Mid-Hudson Region
                                                         Lost Investment Income


                                                                                                               As of
  Year                                       2008         2009        2010         2011        2012        March 31, 2013     Total
Audit Findings:

1. Defective Pricing                         $235,675            $0          $0           $0          $0                 $0   $235,675


                        Totals (per year):   $235,675           $0           $0          $0          $0                $0     $235,675
                       Cumulative Totals:    $235,675     $235,675     $235,675    $235,675    $235,675          $235,675     $235,675

           Avg. Interest Rate (per year):     4.938%        5.250%      3.188%      2.563%      1.875%            1.375%

       Interest on Prior Years Findings:            $0     $12,373       $7,512      $6,039      $4,419                $810     $31,153

                  Current Years Interest:      $5,818            $0          $0           $0          $0                $0       $5,818

   Total Cumulative Interest Calculated
            Through March 31, 2013:            $5,818      $12,373       $7,512      $6,039      $4,419                $810     $36,971
                                                                   Appendix




                                                               HEALTH CARE
March 12, 20 13



~rsonllel Manageme nt
                                                                   VIA e-mail

Office of the Inspector Genera l
800 Cranberry Woods Dr, Suite 270
Cranberry Township , PA 16066


Re:	   :MVP Health Plan, Inc. Audits Retro spec tive/Reconciliation Ra te Audit
       MX: 2008 ,2009,2010,20 11,20 12
       Draft Report dated 12/14/2012

Dear _

Thank you for your dra ft audit report. :MVP has no issues or conceru s with this report . As
recommende d, we will exclude the loading for the Health Dollars from our 2013 reconci liat ion
and future rates accordi ngly.


Sincerely,




Cc :   David W. Oliker, President & CEO
                    OPM