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 Presbyterian Health Plan, Inc. Report No. lC-P2-00-10-008 Date:October 15, 2010 -- CAUTION - This audit report bas been distributed to Federal officials who are responsible for tbe administration of the audited program. This audit report may contain proprietar)' data which is protected by Federal law (18 U.S.c. ]905). Therefore, wbile 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. UNITED STATES OFFICE OF PERSON EL MANAGEMENT Wa hington, DC 20415 Office of the Tn pector General AUDIT REPORT Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Presbyterian Health Plan, Inc. Contract Number CS 2627 - Plan Code P2 Albuquerque, New Mexico Report o. lC-P2-00-10-008 Da~: October 15, 2010 ~~ Assistant Inspector General for Audits www.opm.gov www.usajobs.gov UNITED STATES OFFICE OF PERSONNEL MANAGEMENT Washingt n. DC 10415 Office of the In pector General EXECUTfVESU~ARY Federal Employees Health Benefits Program Community-Rated Health Maintenance Organization Presbyterian Health Plan, IDe. Contract Number CS 2627 - Plan Code P2 Albuquerque, New Mexico Report No. lC-P2-00-10-008 Date: October 15, 2010 The Office of the Inspector General performed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Presbyterian Health Plan, Inc. (Plan). The audit covered contract years 2007 through 2009 and was conducted at the Plan's office in Albuquerque, New Mexico. This report questions $1 154,630 for defective pricing in contract years 2008 and 2009. The questioned amount includes $1,075,400 for inappropriate health benefit charges and $79,230 due the FEHBP for lost investment income, calculated through September 30, 2010. We found that the FEHBP rates were developed in accordance with the Office of Personnel Management's rules and regulations in 2007. For contract year 2008, we determined that the FEHBP's rates were overstated by $496,521 due to defective pricing. More specifically, the Plan used an inconsistent application of the incurred but not reported (IBNR) factors for the FEHBP when compared to the IBNR methodology used for both similarly sized subscriber groups (SSSG). The Plan also did not apply an SSSG discount to the FEHBP's rates. For contract year 2009 we determined that the FEHBP's rates were overstated by $578,879 due to defective pricing. More specifically the Plan incorrectly charged the FEHBP al percent state www.opm.goY www.usaJobs.goY assessment to cover the ew Mexico Health Insurer Alliance and the ew Mexico Medical Insurance Pool mandate. Consistent with the FEHBP regulations and the contract, the FEHBP is due $79,230 for lost investment income, calculated through September 30, 20 I0, on the defective pricing findings. In addition, the contracting officer should recover lost investment income on amounts due for the period beginning October 1,2010, until all defective pricing amounts have been returned to the FEHBP. II CONTENTS EXECUTIVE SUMMARY i I. INTRODUCTIO AND BACKGROUND 1 II. OBJECTIVES, SCOPE, A 0 METHODOLOGY 3 III. AUDIT FINDINGS AND RECOMMENDAnONS 5 Premium Rates 5 1. Defective Pricing 5 2. Lost Investment Income 8 IV. MAJOR CONTRIBUTORS TO THIS REPORT 9 Exhibit A (Summary of Questioned Costs) Exhibit B (Defective Pricing Questioned Costs) Exhibit C (Lost Investment Income) Appendix (presbyterian Health Plan, Inc. 's September 8,2010, response to the draft report) I. INTRODUCTION AND BACKGROUND Introduction We completed an audit of the Federal Employees Health Benefits Program (FEHBP) operations at Presbyterian Health Plan, Inc. (Plan) in Albuquerque, New Mexico. The audit covered contract years 2007 through 2009. The audit was conducted pursuant to the provisions of Contract CS 2627; 5 U.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, annuitants, 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 carriers who provide service benefits, indemnity benefits, or comprehensive medical services. 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 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 12,000 the FEHBP. In contracting with 10,000 community-rated carriers, OPM relies on carrier compliance with appropriate laws 8,000 and regulations and, consequently, does not 6,000 negotiate base rates. aPM negotiations relate primarily to the level of coverage and 4,000 otber unique features of the FEHBP. 2,000 The chart to the right shows the number of o-i'-'===-T'-===-T'--===-or 2007 2008 2009 FEHBP contracts and members reported by 5.438 4,728 • Contracts 5,438 the Plan as of March 31 for each contract o Members 11,864 11,864 10.051 year audited. The Plan has participated in the FEHBP since 1991 and provides health benefits to FEHBP members in all counties of New Mexico. The last audit conducted by our office was a full scope audit and covered contract years 2003, 2004, and 2006. All matters related to that audit have been resolved. The preliminary results ofthis 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 the preparation of this report and are included, as appropriate, as 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. FEHBP Premiums Paid to Plan We conducted this performance audit in ac~ordance with generally accepted government $56 auditing standards. Those standards require that III $54 we plan and perform the audit to obtain t:: ,g sufficient, appropriate evidence to provide a $52 ~ reasonable basis for our findings and conclusions $50 based on our audit objectives. We believe that the evidence obtained provides a reasonable basis $48 for our findings and conclusions based on our 2007 2008 2009 audit objectives. • Revenue $50.7 $55.5 $55.4 This performance audit covered contract years 2007 through 2009. For these contract years, the FEHBP paid approximately $161.6 million in premiums to the Plan. The premiums paid for each contract year audited are shown on the chart above. OIG audits of community-rated carriers are designed to test carrier compliance with the FEHBP contract, applicable laws and regulations, and aPM 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. 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 3 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 Albuquerque, ew Mexico, during March 20 IO. Additional audit work wa completed at our field offices in Cranberry Township Pennsylvania, and Jacksonville Florida. Methodology We examined the Plan's federal rate submissions and related documents as a basis for validating the market price rates. Further we examined claim payments to verify that the cost data us d to develop the FEHEP rates was accurate complete, and valid. 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 Haith Benefits Acquisition Regulations (FEHBAR), and OPM's Rate Instructions to Commtmity-Rated Carriers to determine the propriety of the FEHBP premiLUns 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's policies and procedures, interviewed appropriate Plan officials and performed other auditing procedures necessary to meet our audit objectives. 4 Premium Rates 1. Defective Pricing $1,075,400 The Certificates of Accurate Pricing the Plan signed for contract years 2008 and 2009 were defective. In accordance with federal regulations, the FEHBP is therefore due a price adjustment for these years. Application ofthe defective pricing remedies shows that the FEHBP is entitled to premium adjustments totaling $1,075,400 (see Exhibit A). We found that the FEHBP rates were developed in accordance with OPM's rules and regulations for contract year 2007. FEHBAR 1652.215-70 provides that carriers proposing rates to OPM are required to submit a Certificate of Accurate Pricing certifying that the proposed subscription rates, subject to adjustments recognized by OPM, are market price rates. OPM regulations refer to a market price rate in conj unction with the rates offered to an SSSG. If it is found that the FEHBP was charged higher than a market price (i.e., the best rate offered to an SSSG), a condition of defective pricing exists, requiring a downward adjustment of the FEHBP premiums to the equivalent market price. 2008 We agree with the Plan's selection 0 as the SSSGs for contract year 2008. Our analysis of the rat~ the SSSGs shows that did not receive a discount and_ _ received ~iscount. The Plan did not apply the~ercent discount that eceived to the FEHBP's rates in contract year 2008. In addition, we reviewed the FEHBP's rates and found that the Plan was using an inconsistent rating methodology in its application of the incurred but not reported (IBNR) factors. The Plan originally rated the FEHEP using an annual IBNR factor but rated both SSSGs using monthly IBNR factors. We applied the monthly IBNR factors to the FEHBP's monthly medical claims data, based on the 2008 Community Rating Instructions, which state that the carrier should use the same rating method for the Federal group as it uses for the SSSGs. We accept different rating methods in some situations. If, however, the carrier rates an SSSG using a method inconsistent with the carrier-established policies, the Federal group is entitled to a discount based on the SSSG rating method applied to the Federal group. When we applied the monthly IBNR factors to the FEHBP's medical claims data, the Incurred Completion Factor was reduced from _ to_ 5 We re-developed the FEHBP s rates by applying the monthly IBNR factors to the medical claims data and by applying th. percent discount, granted to to the line 5 rates. A comparison of the reconciled line 5 rates to our audited line 5 rates shows that the FEHBP was overcharged $496,521 in 2008 (see Exhibit B). Plan's Comments (See Appendix): The Plan does not dispute the lB R finding for 2008. However, the Plan disagrees with the finding regarding thellll percent discount that _ _ received. The Plan states that had.pre-65 retirees that were billed a higher premium than the rest of the active employees group in the first quarter of 2007, when the 2008 renewal was being calculated. The calculation of the" percent discount did not consider the higher rates billed to the.pre-65 retirees in 2007. In addition the"pre-65 retirees terminated coverage before January 1,2008 (March 31 2007 and May 31, 2006 respectively) and were not covered in any month of 2008. Detailed bills were included for each month of2008 to show that neither subscriber was covered in 2008. Based on this information the Plan disputes the finding that _ w a s given a discount o~percent; therefore, they state that the defective pricing amount for 2008 should be reduced by approximately $120,000, plus any interest on that amount. DIG's Response to the Plan's Comments: We acknowledge the Plan s agreement with the IB R finding and the subsequent application of the monthly IBNR factors to the FEHBP's rates in contract year 2008. We disagree with the Plan's assertion that the.pre-65 retirees received a higher billed rate in the first quarter of 2007. While on-site, we obtained copies of the March 2007 bills, which show th~re-65 retirees receiving the same rate as the active enrollees (_single a n d _ employee and spouse). The 2007 billed rates affect the calculation of the current per me~h (PMPM) rates, which we calculated at a lower amount than the Plan used in rate development. The variance in the current PMPM leads to an increased rate change and ultimately an increased rate for 2008. We also disagree with the Plan's assertion that removing the"pre-65 retirees and the _ _ from the quoted rate model, due to termination, would negate the discount that received. When we removed from the single tierl,• • • _ r o m the employee and spouse tier and from the total members, the discount for slightly increased to .percent. Another issue that we have with the Plan's argument is the fact that the Plan states that one of the pre-65 retirees terminated as of May 31, 2006. The enrollment system report that was 6 provided in the Plan's response to the draft report supports the date of tennination, but the bills that were provided on-site continue to show the pre-65 enrollee being billed by the Plan until at least March 2007. The information provided by the Plan does not change our original conclusion that _ _ received a discount due to the fact that the bills show the pre-65 retirees being charged the same amount as the active members. We continue to contend that_received a "percent discount and this discount was not applied to the FEHBP rates. We agree with the Plan's selection 0 as the SSSGs for contract year 2009. Our analysis of the rates charged to the SSSGs shows that neither group received a discount. We reviewed the FEHBP's rates and found that the Plan charged alpercent loading for an insurance pool assessment. The insurance pool assessment loading is a state mandated charge for the New Mexico Medical Insurance Pool (NMMIP) and the New Mexico Health Insurer Alliance (NMHIA). The NMMIP is a state assessment that allows for coverage of uninsured ew Mexico state residents. The MHIA is an alliance of the New Mexico Insurers that allows underwriting of indi iduals and small businesses. This allows the risk to be spread across all insurers. State assessments are an unallowable cost identified by the 2009 Community Rating Instructions which prohibits the imposition of taxes, fees, or other monetary payment, directly or indirectly, on FEHBP premiums by any State, the Dish-jet of Columbia, or the Commonwealth of Puerto Rico or by any political subdivision or other govemmental authority of those entities. We re-developed the FEHBP's rates by removing the insurance pool assessments. A comparison of the reconciled line 5 rates to our audited line 5 rates shows that the FEHBP was overcharged $578,879 in 2009 (see Exhibit B). Plan's Comments (See Appendix): The Plan does not dispute this finding for 2009. Recommendation 1 We recommend that the contracting officer require the Plan to return $1,075,400 to the FEHBP for defective pricing in contract years 2008 and 2009. 7 2. Lost Investment Income $79,230 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 findings due the FEHBP in contract years 2008 and 2009. We determined that the FEHBP is due $79,230 for lost investment income, calculated through September 30, 2010 (see Exhibit C). In addition, the FEHBP is entitled to lost investment income for the period beginning October 1,2010, until all defective pricing finding amounts have been returned to the FEHBP. FEHBAR 1652.215-70 provides that, if any rate established in connection with the FEHBP contract was increased because the carrier furnished cost or pricing data that were not complete, accurate, or current as certified in its Certificate of Accurate Pricing, the rate shall be reduced by the amount of the overcharge caused by the defective data. In addition, when the rates are reduced due to defective pricing, the regulation states that the government is entitled to a refund and simple interest on the amount of the overcharge from the date the overcharge was paid to the carrier until the overcharge is liquidated. Our calculation oflost investment income is based on the United States Department of the Treasury's semiannual cost of capital rates. Plan's Comments (See Appendix): The Plan does not dispute lost investment income being calculated for the lBNR finding in 2008 or the state assessment finding in 2009. The Plan does not agree with the SSSG discount finding in 2008 and feels that lost investment income should not be calculated for the amount related to that finding. OIG's Response to the Plan's Comments: We disagree with the Plan's assertion that lost investment income should not be calculated for the SSSG discount finding in 2008. We feel that the finding is correct and will continue to assess lost investment income for the full amount of findings in contract years 2008 and 2009. Recommendation 2 We recommend that the contracting officer require the Plan to return $79,230 to the FEHBP for lost investment income for the period January 1,2008 through September 30, 2010. In addition, we recommend that the contracting officer recover lost investment income on amounts due for the period beginning October 1, 2010, until all defective pricing amounts have been returned to the FEHBP. 8 IV. MAJOR CONTRIBUTORS TO THIS REPORT Community-Rated Audits Group Auditor-In-Charge Auditor Auditor Chief Senior Team Leader 9 Exhibit A Presbyterian Health Plan, Inc. Summary of Questioned Costs Defective Pricing Questioned Costs: Contract Year 2008 $496,521 Contract Year 2009 $578,879 Total Defective Pricing Questioned Costs: $1 075,400 Lost Investment Income: $79,230 Total Questioned Costs: $1,151.630 Exhibit B Page 1 of2 Presbyterian Health Plan, Inc. Defective Pricing Questioned Costs 2008 - High Option Family FEHBP Line 5 - Reconciled Rate • • FEHBP Line 5 - Audited Rate Overcharge To Annualize Overcharge: 3/31/08 enrollment Pay Periods 26 26 Subtotal $115,489 $365,922 Total 2008 - High Option Defective Pricing Questioned Costs $48],411 2008 - Standard Option Self Familv FEHBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Overcharge To Annualize Overcharge: 3/31/08 enrollment Pay Periods 26 26 Subtotal $4,593 $10,517 Total 2008 • Standard Option Defective Pricing Questioned Costs $15,110 Total 2008 Defective Pricing Questioned Costs $496,521 Exhibit B Page 2 of2 Presbyterian Health Plan, Inc. Defective Pricing Questioned Costs 2009 - High Option FEHBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Overcharge To Annualize Overcharge: 3131/09 enrollment Pay Periods 26 26 Subtotal $130,266 $385,382 Total 2009 - High Option Defective Pricing Questioned Costs $515,648 2009 - Standard Option Self Family F HBP Line 5 - Reconciled Rate FEHBP Line 5 - Audited Rate Overcharge To Annualize Overcharge: 3/31109 enrollment Pay Periods 26 26 Subtotal 11.794 $51 437 Total 2009 tandard Option Defective Pricing Questioned Costs Total 2009 Defective Pricing Questioned Costs $578,879 Toal Defective Pricing Questioned Costs $1,075.400 EXHIBITC Presbyterian Health Plan, Inc. Lost Investment Income Year 2007 2008 2009 2010 Total Audit Findings: I. Defective Pricing $0 $496521 $578,879 $0 $[,075,400 Totals (per year): $0 $496,521 $578879 $0 $1,075,400 Cumulative Totals: $0 $496,521 $1,075,400 $1,075,400 Avg. Interest Rate (per year): 5.5000% 4.9375% 5.2500% 3.1875% Interest on Prior Years Findings: $0 $0 $26,067 $25,709 $51,776 Current Years Jnterest: $0 $12,258 $15,196 $0 $27,454 Total Cumulative Interest Calculated Through eptember 30, 20 I0: $0 $12,258 $41,263 $25,7091 $79,230 Appendix !. PRESBY ERIAN 2010 SEP 14 PM 3: 08 eplember 8, 2010 Chief Community-Rated udits Group U. . Office of Personnel Management Office ofIn peclor Gen ral 1900 Stre t, NW Room 6400 Washington D. .20415-110 Re: Presb terian Respon e to Draft [Proposed Report - OPM Report umber: 1C-P2-00-1 0-008 Oat : June J 7 20 10 Dear_ Thank you for the oPPOltunity to respond to the Draft Report for PHP FEHBP plan. Following are responses 10 the arious finding. 2008 The OIG audit team calculated a discount I _ f o r the Januar 1 2008 renewal. had.pre 65 r tiree lhat were billed a higher premium than the rest ofthelc• • • active employees in the first qua11er 0[2007 when the January 1,2008 renewai 'vvas being calculated. The.pre 65 retit'ees were: he pre umption of the OIG audit team in arriving at th~discount was that the individuals were billed at the lower activ rates in 2008. e_ lowe er, we have sine b en able to do additional research back to the relevant points in tim I am attaching the April 2007 demographic report which shows the _ in the retiree class. term inated co erag with us effecti e 3/31/2007. retroactively terminated cov rage back to 5/3112006. terminated coverage before January 1, 2008 and \ ere not covered in any month of 2008. I am including the detailed bills for ach month of2008 to show that • • • • • • • "\las cover din 2008. Based on this information we dispute the finding that was given a discount of _therefore the defective pricing amount for 2008 F HBP should be reduced by approximately $120,000 plus any interest 011 that amount. OTHER FINOr GS Pr sbyt rian does not disput the I NR finding for 2008 or th tat Assessment finding for 2009. Thanks for your consideration related to tlus finding. ~ nior Actuarial Assistant Presbyterian Haith Plan
Audit of the Federal Employees Health Benefits Program Operations at Presbyterian Health Plan, Inc
Published by the Office of Personnel Management, Office of Inspector General on 2010-10-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)