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
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)